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Increasing costs. Evolving consumer expectations. And accelerating disruptions. Today’s supply chain leaders face more challenges than ever before. Hosted by Karl Siebrecht, the Logistics Leadership Podcast features industry interviews, warehousing and transportation deep dives and the unique insights supply chain leaders require to compete and win in today’s environment.
[00:00:00] Narrator: It's the Logistics Leadership Podcast with Karl Siebrecht and Ben Dean.
[00:00:11] Karl Siebrecht: Welcome back to the Logistics Leadership Podcast. Once again, I am your host, Karl Siebrecht, and I am here as always with my colleague, Ben Dean. Ben, how's it going today?
[00:00:21] Ben Dean: It's going great, Karl. Excited to do this. What are we actually talking about today?
[00:00:25] Karl Siebrecht: This episode is one of my favorites. We are going to explore how venture investors and PE investors think about investing in the logistics space.
[00:00:37] And my guest today is a perfect candidate to share his views on this. Will O'Donnell, who runs the Venture Investing Group at Prologis. Prologis, as I'm sure pretty much all of our listeners must know, is the largest owner of warehouse capacity in the world. They have something like 1.2 billion square feet of warehouse capacity in their portfolio.
[00:00:59] So they know something about logistics and supply chain. Will specifically has been there about 20 years, had a bunch of roles, and he is also the founder of their venture investment group, Prologis Ventures.
[00:01:14] Ben Dean: Wow. Prologis. That's going to be a great conversation. The 1.2 billion, it doesn't much surprise me.
[00:01:20] I'm in and out of their warehouses pretty much every week. Didn't know they were into the investing side of this so much though.
[00:01:27] Karl Siebrecht: Probably more than any other single company, or certainly let's call it in the top three. They have a sense, they, Prologis, have a sense of what's going on in the logistics industry, what customers’ needs are, where this thing is going.
[00:01:40] Ben Dean: Yeah. Since investing is the focus of today's episode, I was actually recently talking to a recipient of new private equity, and he was talking about how they're taking that investment and innovating with it. So let's hear from him after your conversation.
[00:01:53] Karl Siebrecht: That's perfect. So, without further ado, Will, it is great to have you on the podcast.
[00:01:59] Great to be here, Karl. Let's just start very basically, if you'll just tell us kind of who you are and what you do.
[00:02:06] Will O'Donnell: Certainly. So, I've been at Prologis for over 20 years so far. Throughout my career here, I've served a pretty wide variety of roles, but the last eight has been focused on really starting and growing our corporate venture group, really looking, you know, I'll get more in the strategy, but how do we leverage our platform and
[00:02:27] areas of focus to really expand and grow. So we, as a company, own the logistics real estate, but so much in logistics happens inside the warehouse, outside the warehouse, and you have all these interconnected parties that are trying to work to move goods. So we've been really focused on helping build out that ecosystem and strategy, both with investing in companies, but then also incubating and starting.
[00:02:50] And then we do a lot of partnerships with more established companies. Or spend a lot of time co-innovating with our customers to really understand where pain points may occur.
[00:02:59] Karl Siebrecht: That's great. So can you characterize or summarize your Prologis Ventures investment thesis? You kind of covered it in the intro, but how would you sort of frame that?
[00:03:11] Will O'Donnell: We look at it from a standpoint of, where do we have an opportunity to drive change? So, in a couple key areas, one, we own a bunch of buildings, so we do investments around real estate and PropTech, but with a focus on industrial. Construction is another big area of interest. We build a couple billion dollars of new real estate a year.
[00:03:32] So, understanding how we can help drive more efficient construction processes, but also looking at net zero. So new concrete, green concrete, green steel. So how do we help our business meet our net zero requirements and actually find more sustainable materials? Where we spend a lot of time is around supply chain and logistics.
[00:03:54] And for that, the general thesis that I've had and developed over the years is, everyone in the industry made a lot of money by all these different services becoming unbundled. By that, we own warehouses. So we're really optimizing on rent. Someone else operates the warehouse. They operate. They optimize on operating the warehouse.
[00:04:14] Someone else owns the truck. Someone else owns the ships.
[00:04:17] Karl Siebrecht: Right.
[00:04:17] Will O'Donnell: When we look at the modern day supply chain, all these different pieces need to come together and customer level expectations, whether it's same day next day, have just increased putting more pressure on a supply chain. The complexity of manufacturing that people are sourcing materials. And it's created a unique environment where although you have all these partners who have optimized for individual components to get the supply chain to work, you need them to work in tandem, and you need to have connectivity between all these different pieces.
[00:04:47] So what we've done is really sat there and realized, okay, we have a perspective from the owner of infrastructure. But how do we sit with our customers and understand where their common pains are? How do we sit with other providers, understand their common pain points and then co-develop solutions? So the thesis has really been around, supply chain is an incredibly complex process.
[00:05:10] Most VCs focus on software for a reason, that it's scalable. So once you have the R&D costs up front, you put the software in a cloud and through SaaS, you can assimilate it anywhere. And it's like a net zero incremental cost. Supply chain is actually the opposite where, we have to move physical goods.
[00:05:29] So you're suddenly starting with the concept of I've got to move atoms from one place to another. How do I apply technology on top of that? How do I digitize it? So it creates a unique, I think, situation where you're trying to apply technology to existing processes, and you have to have both a very deep understanding of how the system works and connects together, but also realize what constraints can be removed because technology can be introduced.
[00:06:00] So just because we did business the same way for the last 20 years doesn't mean it has to continue to operate the same way. And if you think about constraints, a lot of them are self imposed. So McDonald's most successful day they've ever had was the day that they decided that they were going to serve breakfast after 11 a.m.
[00:06:21] And there's a whole lot of questions like, okay, how do we redo our supply chain? But that was a self imposed constraint that McDonald's had put on themselves. And our business, the same way, is we've moved goods through this process over the years and people used Excel spreadsheets to communicate, et cetera.
[00:06:40] Right. But now, as technology has become more effective, how do we relook at the process and think how we can do it differently? And even, I mean, if you look at your business, it really took technology and spun how do you think about inventory storage in a much more flexible manner? 15, 20 years ago, the technology wasn't there to be able to remove that constraint and give people the ability to have a fixed supply chain and a flexible supply chain.
[00:07:08] So that's a lot of how we think about it is, how do we connect these different pieces, understand why the system has been in place how it is, what constraints that will exist moving forward, but what constraints could technology or change in business process actually address? And then the third area we spend a lot of time around is energy.
[00:07:31] And by that we are the second largest operator of rooftop solar in the world, and about four percent of our roofs are covered. So there's a huge opportunity to build a massive distributed energy company, and we're able to help our customers achieve net zero goals by being able to produce renewable energy at or below the cost of
[00:07:53] energy traditionally. So we've spent a lot of time building out that business and looking at technologies. EV charging infrastructures is another area that our customers are going through a transition. The infrastructure is in place. We happen to own a lot of the facilities and know how to buy real estate, know how to work with utilities, know how to put in infrastructure.
[00:08:12] So we've brought in a team who really understands transportation in the EV market. And then we're starting to do data centers. So power generation and technology around where we are today with the grid versus looking ahead in the next 10 years where our national grid needs to get to, what type of technology needs to be invested in to really try power generation and more efficiencies and power consumption.
[00:08:37] Karl Siebrecht: Fantastic. Okay, that's great. Lots to unpack. I want to reference a McKinsey report that just came out July of 2024. And it is titled Logistics Startup Funding: The Investor Pullback Continues. And then the subtitle is, In the Post COVID-19 Era, Investors Pinch Their Pennies. Those pithy titles from our friends at McKinsey.
[00:09:09] And you get into the meat of it, it shows the data that says investment dollars have plunged 90 percent over the past two years from the peak year in 2021. So clearly, I think to anybody listening and anyone certainly who's working in the sector, some of the buildup was COVID related, call it COVID tailwinds.
[00:09:38] Maybe some of the falloff is a correction or a COVID headwind, but what do you think? Like, does this say anything about venture capital as kind of not being a great fit for the category? Because to kind of borrow one of your phrases, this is more about atoms than electrons. And it's a little bit far afield from a classic venture investors mindset.
[00:10:06] Will O'Donnell: Yeah. I mean, I think as a starting point, you could probably take that title and apply it to any industry and you're gonna see a pullback. So I could replace supply chain with fintech. I could replace supply chain with, like, the only one that hasn't had a pullback is AI. So, I think, yes, there's been a pullback, but then there's been a pullback from investing in startups overall.
[00:10:33] So you just look at venture capital dollars deployed when money was free, lots of money was flowing out. When there's a higher expectation on returns, venture capital investments have slowed considerably. I think specifically within supply chain, a couple of things happened. During COVID, five years of e-commerce transition got pulled forward into six months.
[00:10:56] And the reality is, once the world opened up again, people actually do like going into stores. They're experienced there. So I think yes, you've seen an accelerated adoption, but to some degree it resorted back to the mean of the curve. I think secondly, out of that, there are a lot of business models that people made assumptions that would be quickly adopted, and I'll do an example of that, like the 15 minute grocery delivery.
[00:11:27] That is an incredibly hard business, both on the margins for grocery traditional, but then how do you build out a supply chain that can have the right inventory at the right time, within 15 minutes of my house that gets density to deliver it? So the unit economics there are really, really, really tough to make work.
[00:11:47] And there was just an incredible amount of money that went in to fund these capital intensive businesses under the assumption of, we'll buy scale and at scale, all these economics will work. Instead, it turned into, we're going to subsidize consumers buying to try to capture market share. Where I'm going with this, I think that was an incredibly hard and capital intensive model that unfortunately a lot of people got burned on and then the capital disappeared from continue to invest in it. And it was such an inordinate amount of the spend that if you actually separate that out true supply chain, yes, there's been a decline, but it hasn’t been 90 percent down. I think the third thing is, is what we touched on earlier.
[00:12:30] It is a hard sector to invest in. That said, 2.4 trillion was spent in the U. S. last year in supply chain. So it's, I don't know, roughly eight, nine percent of GDP. Companies have actually recognized that, it is now a mission critical part of their business. Like if I don't have the right inventory in the store shelf at the right time, I lose consumers because now there is a plethora of options.
[00:12:58] So I think in a way it's become much more like paramount of companies to actually figure this out. So companies are spending more time to try to figure out how to invest into it, but capital's gotten more expensive. Freight itself, the transportation industry, has been in probably the worst recession in at least 20 years, if not ever, for the last two years, which has put a lot of pressure.
[00:13:24] And by the way, cost of capital for all of us got more expensive. So you're starting to see decision making timeframes shift out. But at the end of the day, I think the mission critical nature of supply chain has actually increased. So companies are trying to figure out how to invest in it, how to make themselves more resilient.
[00:13:44] They're just doing it in a more thoughtful way. And some of the business models that may not have had the best unit economics that people got burned and are pulling the money out of it.
[00:13:58] It will continue because it is such a vital and critical part of driving commerce. But you now have people who have a lot deeper understanding of both the intricacies of supply chain, but then also how to apply new technologies against it to create opportunity. So maybe I'm a little biased, but I'm actually
[00:14:18] optimistic that it's going to continue to accelerate. I think the amount of dollars that were flowing in were pretty unsustainable, but I think we could point at a lot of other industries too that are suffering a little bit of the same withdrawal from capital because capital is going into places that didn't give the right returns.
[00:14:37] Karl Siebrecht: Yeah, got it. So there was arguably a little bit of irrational exuberance, particularly in some subsectors of logistics, super fast delivery, in particular grocery. But that doesn't mean that the broader category lacks opportunity or that venture capital as a particular type of capital is a bad fit for the sector.
[00:15:01] Will O'Donnell: Yeah. And I think on that, there's going to be different categories of capital that come in because a lot of supply chain is infrastructure related. So I think you're going to see more of the infrastructure funds, take a look at some aspects of it that tend to have a longer whole period and rates of return that are more commiserate with an infrastructure investment.
[00:15:22] There's definitely going to be software and data investments. And you're going to see venture capitalists focus on those areas because they may align more with their return expectation margin and the risk profile. So I think even within supply chain categorizing the different opportunities and what's a true technology, what's a business model that's now tech enabled and what's an infrastructure, to really simplify it,
[00:15:46] it's a little more complex than that. But if I just put in those three categories, there's opportunities for different buckets of capital to come into each. They just need to understand the return profile. So if a venture investor’s investing in something that is really an infrastructure play, then you're going to have a mismatch. At the same point,
[00:16:06] infrastructure investors aren't really looking at the growth, et cetera, the profile that's needed for a traditional software company that may be trying to attack supply chain.
[00:16:18] Karl Siebrecht: Okay, so, Will, you've talked about a couple of things that are related. One is that, it was actually a great perspective, that
[00:16:25] over time, the value chain of supply chains has split apart. So there are a lot of different companies that are tackling individual segments of the value chain. I mean, obviously Prologis is the world's largest owner of warehouses and there are other companies that focus on freight, the freight service, then there's the assets in freight, then there's a brokerage and a technology layer of freight.
[00:16:54] So it's broken apart. That's one dynamic that is true. The second dynamic and related is that all those things have to work really, really well together for that ultimate customer here, the shipper in service of the consumer. And maybe the third dynamic is that technology has to be, is already, but certainly has to be a big part of that equation for sort of tying together all those disparate players in service of the ultimate
[00:17:26] goal, which is to move stuff from point of origin to point of destination, you know, at the lowest cost per unit, on time. So that's kind of the industry that we're playing in. You know, I think given the reality of that, having the perspective of operators at the forefront of what investments, what innovations, what technologies are the most promising, is really important.
[00:17:54] It's people who bring an operational mindset. They understand the complexities of moving the atoms around. Is that a fair way to think about it?
[00:18:03] Will O'Donnell: Yeah, I think it is. AI has been a huge topic of conversation recently. And putting aside foundational models, which there's a select few spending a lot of money on creating new foundational models.
[00:18:20] The question everyone is trying to figure out is, how do I apply AI to my own business?This is where I get most excited for supply chain as a whole, because as you just described it, there's all these siloed parties that traditionally have operated in their own silo with their own data. But to get the visibility that's needed, how do you create more connectivity across these different parties, but then able to process data in a really efficient manner that can drive actionable insights?
[00:18:52] And I think that's the core of what AI can do. As an industry like how do we get more cooperation and overlap between all these different parties in a way people are interested in contributing their data and because the output is greater for everyone than the data being proprietary is for one individual player, right?
[00:19:16] So, and just an example, what I'm talking about there, like all of us were willing to carry phones in our pocket that told people where we were, because that now means I can share my location data with Uber and a car can come pick me up, right? And the cab drivers are willing to share their information
[00:19:33] because it gives them access to market. So that's where, am I willing to forego my privacy to let people know where I am right now? I am because the value of me contributing that in is as much greater. To translate that to a B2B standpoint, we've all used data proprietarily in the past to drive our own business decisions, but by a Prologis or a trucking company or an operator contributing portions of their data into a greater
[00:20:03] visibility tool, does that open up more opportunities? And I think that's one of the biggest challenges of the industry, but also where the biggest opportunity is. And as a human going through just reams and reads of data, trying to figure out how to extract that insights, not going to happen, but if AI can help us do that in a more efficient manner and then translate it to actionable insights, you're enhancing people's ability to make strategic decisions.
[00:20:36] And that's where I get most excited about moving forward. It's how do we create the coalition of the willing, I guess, but how do you get people together in a room, looking and say, okay, like efficiencies of transportation and the amount of deadheading that goes with trucks, like, how do we get different people in a room who might have different components of that data
[00:20:59] that can share it in a way that suddenly opens up opportunities.
[00:21:02] Karl Siebrecht: Have you seen a shift, either amongst the shippers of the industry or the logistic service providers in the industry? Have you seen a shift in their kind of willingness to share or their risk profile around sharing information and taking more bets on innovation?
[00:21:28] Will O'Donnell: Yeah, I have. And I mean, it's less of why we need technology to drive business decisions and why should we change to, okay, we know we need to. Now the conversation seemed to be more on like how. And there is still a willingness to, a much bigger willingness now to try new things and work in collaboration and co-innovate. I think the challenge with supply chain as a whole, it's kind of like the offensive line in football where it got prominence during COVID because it suddenly broke and suddenly C-level executives were paying attention to supply chain, right?
[00:22:09] Karl Siebrecht: Right.
[00:22:09] Will O'Donnell: Like normally it just operates and that's kind of good. It's like the well run offensive line just blocks and tackles and the running back scores. So there is an element of we need to figure out a way to work in collaboration that doesn't put the greater supply chain at risk, but can drive incremental changes.
[00:22:29] And that's where I think a lot of companies are going through and understand, like, how do we streamline our process of testing? How do we get data faster? How do we collaborate in a way that doesn't cause operational harm, but can actually accelerate the adoption? And that's where I've seen the last couple of years, a lot more companies reaching out and sharing information and trying to figure out best practices.
[00:22:55] Karl Siebrecht: That's well put. You know, one of the things I find myself saying probably more frequently than I need to is that it feels like in the journey that we've been on, the mentality, broadly speaking, of the industry has shifted from playing defense to now starting to play a little bit more offense, just to use another football metaphor. Many of the people who have been very successful over the decades, it's kind of this, hey, don't lose stuff, don't break stuff.
[00:23:27] Send me a couple of points, save me a couple of points of margin next year and you get the gold star. But over the past several years, and certainly I think COVID helped to accelerate this view, is that there's an opportunity here to drive innovation through supply chain that can really create
[00:23:47] competitive advantage. Now, there's risks to doing that because it's kind of like, back to your offensive line, if something goes wrong your quarterback could get smashed and he's out for the year. But it's how to thread that needle a bit. But we do see more and more companies being willing to test and try and experiment more.
[00:24:10] Will O'Donnell: Do you think also part of it's due to during COVID everything happened so fast that you didn't have a chance to, okay, we're going to run a year pilot. It's like, okay, in the next three weeks you need to get this done. And they didn't be like, Oh my God, like the world didn't fall apart. Like this actually works.
[00:24:27] Karl Siebrecht: I think that's exactly right. It's exactly right. I mean, the cost of inaction was far higher than the cost of potential failure in trying something new. And I think that was a lesson learned from a lot of people. And look, I think that also, you know, put the spotlight on the supply chain, you know, in the boardroom and a lot more focus around agility, resilience.
[00:24:52] We hear these words a lot. I just recently, there's an organization, research organization, it's fantastic called Zero100. We've actually had them on as a guest before, and they have some research that they've been doing and it kind of falls under the umbrella of resilience on offense.
[00:25:12] I may not be getting the phrase right, but that's the essence of it. It's how to take what we learned in, you know, frankly, building and investing in resilience as a reaction to COVID and other sort of natural disasters and international conflict and shift that into now, how can we do this more proactively?
[00:25:33] I've gotten a peek at it. It's super cool. And I'm excited to hear more from them, but I think that does strike on a key shift that's happening in the market.
[00:25:43] Will O'Donnell: Yeah, I think, I really like your point on the cost of inaction. I hadn't really thought about it before in those terms, but
[00:25:52] it did expose and I think people took for granted, like, okay, a certain percentage of our sales every year are going to be diminished because of stockouts. And it was just kind of like, an assumption that was underwritten that people just dealt with. And there was now during COVID and everything with the pressure and supply chain,
[00:26:13] I think people realized that, wait a minute, we can't actually address that. The technology and systems have changed to allow us. So I think that's actually one of the bigger motivating factors that we're seeing is that people can realize that they can proactively drive their supply chain now and be ahead of.
[00:26:31] I mean, it's one of those that, supply chain and just on demand was one of those things that looked great on PowerPoint. And everyone came out and we redid all our supply chain to meet just in demand. But then you have a black swan event that happens literally every year, whether it's a pandemic, whether it's hurricanes, it's floods, there's now wars, right?
[00:26:55] You don't underwrite those black swan events and you kind of write it off as a once in a hundred years, but if for every year or once in a hundred occasions. So I think people realized that they were viewing supply chain as a reactive endeavor but by investing the technology they can actually get ahead of it. And there's a cost of inaction of not dealing with it, but buying proactive, it actually gives them a competitive advantage because they'll have the right inventory in the right place where their competitors may not.
[00:27:24] Karl Siebrecht: That's right.
[00:27:25] Will O'Donnell: I really like the cost of inaction.
[00:27:27] Karl Siebrecht: One of the ways I've thought about this a lot over the years is, you know, when the marketing organization inside of enterprise companies started to digitize, you know, going from television ads and radio ads that weren't really very measurable to basically internet based ads that were very measurable.
[00:27:47] The first thing was like, oh, gosh, we can measure all this stuff and we can do ROI and that's super important. But then we shifted or evolved further into constantly running tests, constantly running tests. You're testing ad copy, you're testing color, you're testing placement, you're testing, you know, keywords and search constantly, right?
[00:28:07] And so the mentality shifted to, you're always running experiments. In fact, if you're not running experiments, you're not doing your job and you're going to get fired. Right? So if I'm the CMO, part of my agenda is, what experiments are we running right now? What are we learning? A bunch of stuff isn't working.
[00:28:25] That point will come, I believe, and should come, needs to come in supply chains. We should always be running an experiment, not like, oh, we've got the machine. It's well oiled. We don't want to mess with it. And maybe one off we'll do, hey, we're going to plan one experiment for like next Q3, you know. Think about when there's constantly a test plan and we're constantly testing things like that's the way this needs to work.
[00:28:53] There's a lot of plumbing that has to happen to get there. But frankly, a lot of those capabilities are available to people today. And the bigger blocker to that being true is again, kind of a mindset and a risk aversion perspective.
[00:29:09] Will O'Donnell: A weird coincidence for the audience. Both Karl and I were in digital advertising in the late 90s and the early 2000s.
[00:29:20] I know exactly what you're saying. But yeah, you're right. I think the advancement of technology to allow quick test because it's really hard to run tests on a physical nature where you're like, okay, I'm moving goods. How do I test to pass against each other? And people used to say, okay, it's going to take me 6-9 months.
[00:29:39] We'll plan it out. And I think you're right. People have figured out like, how do I continually test? How do I capture that data? And then how do I communicate across an organization? Because if only one group figured it out, okay, it's incrementally better, but if we can share it with a much broader audience, then it actually becomes effective.
[00:29:58] And if you're in a business that, as you said earlier, that saved me a couple basis points here and there, like, if you can accelerate that savings, it compounds really, really quickly.
[00:30:11] Karl Siebrecht: Absolutely. And, you know, look, I think for, broadly speaking, a lot of the tech infrastructure, the companies that have, like, their core technology has evolved now over the years, probably not as fast as any of them would have wanted it.
[00:30:24] But to be able to pull out, you know, a specific product line or a specific region or a specific channel or a specific whatever and run, you know, a well planned test. I just think it unlocks a tremendous amount of value. Okay. Switching topics. How many companies roughly are there in the Prologis Ventures portfolio?
[00:30:46] Will O'Donnell: 49.
Karl Siebrecht: 49. All right. So, give us a sense of either what's in the portfolio today or stuff that you've had a peek at. What are kind of just some of the coolest technologies that you've come across? Coolest, you know, you can define that how you would like.
[00:31:04] Will O'Donnell: I think if we break it into like some broad trends, I mean, one of them to start with is just sustainability. I think for me, what's been most exciting about the advancement of technology there is twofold. One, there is really a true ROI now.
[00:31:25] And that business decisions can be made around sustainability because they're better business decisions than the prior. So, example, I was talking to someone who's a large public infrastructure in Texas, and by buying wind energy, they're saving 20 percent a year on their energy cost. It's great they're buying wind energy, but it's even better for that business in Texas that they're saving 20 percent because of their source of the energy, right?
[00:31:53] Karl Siebrecht: Yeah.
[00:31:53] Will O'Donnell: So as a starting point, now that these are actually really good economic decisions, it drives adoption faster. And I think the industry as a whole has realized that subsidies are in place to help get scale, but why is the adoption happening? Really? It's because at the end of the day, you can sit and tell your shareholders that we're driving value through the economic decisions.
[00:32:18] Now, personal level, like if I can go through and start an EV charging infrastructure that can influence the outcome of conversions of trucks on a massive scale, I just made the world a better place for my two daughters. So on a personal level and motivation of the employees like to be able to do what we're doing on the renewables and EV charging infrastructure.
[00:32:41] And then looking at green concrete and green steel, like, we have the ability to influence an outcome that I get excited about and feel fantastic because I'm going to make the world a better place for my kids and the next generation. So, that's an area that we are spending a lot of time. I think secondly, within supply chain and logistics, that as companies have gotten more adept at everything we were just talking about, how to test technology, how to use technology and how to adopt and think differently.
[00:33:14] We talked a little bit earlier on data and that for me is one of the more exciting places to go and it's data for the sake of data is kind of useless because you end up with all these big data lakes that no one knows what to do with, but it's then how to take the data and drive actionable insights and enhanced decision making that I find fascinating.
[00:33:34] And I think one of the values in AI in our business is, I don't want to make up numbers, but directionally, like, let's say someone spent 70 to 80 percent of their time trying to find information and then spends the 20, 30 percent of the time thinking strategically about what to do with that. What happens if we can inverse that?
[00:33:53] And now they're only spending 20 to 30 percent of their time trying to collect the information. And now they can focus on the 70 percent driving true strategic decisions on it and be more predictive. And that just has some fundamental shifts on how the supply chain can operate. And we as consumers, like if we can get access to better
[00:34:15] medicines on time, if you can get the right goods at a cheaper price at your house, it just opens up so many opportunities on driving commerce in a way that's beneficial. And I mean, obviously, inflation is a big topic these days. How does a more efficient supply chain that is 2.4 trillion a year,
[00:34:38] if we can drive more efficiencies through that spend, it does bring down inflationary cost.
[00:34:45] Karl Siebrecht: Yeah.
[00:34:45] Will O'Donnell: That is a much more complicated, but overly simplify it. I mean, that's part of the value of technology and something that's an underlying infrastructure that you can drive efficiencies that weren't there that ultimately will accrue to consumers or accrue to the companies operating or accrue to everyone across that supply chain.
[00:35:05] So that's an area. And within that, you get technology and robots are always really cool to look at and see how they go. And I think the autonomous vehicles, the drones, like, there's a lot of just cool technology. Computer vision is fantastic on like, how do you capture insights and drive value, whether it's through safety, whether it's operational efficiencies?
[00:35:30] How do you eliminate fraud in our industry? These are just some societal challenges that I think technology can help us address in a more efficient, better manner.
[00:35:42] Karl Siebrecht: I love the way you characterize that. So the 2.4 trillion of spend per year, it's a huge lever. That's a huge lever. If you can get some
[00:35:50] results against that lever, it could really have an impact broadly across the economy, right? It's that big. I mean, nine percent of GDP.
[00:36:00] Will O'Donnell: I think it’s like 35 percent of trucks driving on the road at any time or deadheading, which means that they're empty because they're driving from one location to another.
[00:36:09] So let's say about half of the supply chain spend. Well, it was 850 billion was trucking last year, about. If 35 percent of those trips are trucks driving around without cargo, there's no one that's accruing to that's a benefit because the truck drivers would prefer to actually be carrying stuff because that's how they get paid.
[00:36:30] The shippers would prefer to have fuller trucks because their prices are going to go down, right? So it's this problem that usually when there's inefficiencies, there's somebody who's benefiting who fights it. In this case, things like that, there's no one who's benefiting from it. It's just a systematic problem of how do we better share information across the various stakeholders in a way that allows for better transactions.
[00:36:55] So that's where I get excited. I think a lot in supply chain as technology comes in is we can attack these universal problems and just rip out cost to the benefit of every single provider.
[00:37:11] Karl Siebrecht: Yeah. Great. Okay. So let's get your thought on a prediction. So three years from now in logistics, what do you think will be one of the biggest, highest impact changes?
[00:37:25] Will O'Donnell: I think continuation of what people are doing on inventory management and inventory placement. You guys spend a lot of time working with customers, but the better predictive customers can have about having the right inventory at the right place at the right time. That then leads to density delivery that's products being available and consumer wants it is a really hard problem to solve, but the benefits to everyone are massive.
[00:37:56] It's not an easy problem though, as you're well aware, which for me, as an owner of logistics real estate, as Prologis is, like it's a really important thing that we can help solve for our customers, but we need other parties around the table who control different parts, all working in tandem. So I think that gets solved through data analytics to allow it to happen.
[00:38:22] It can get solved through automation that once you have a repeatable process, then you can start putting automation to even drive faster throughput and enhancing human productivity. I think it gets into how do people visualize the supply chain? How do people get much more predictive around where I'm bringing inventory and when? Without getting into politics, there's obviously a lot of issues.
[00:38:48] Challenges are happening in global logistics. How do we think about what's coming? The challenges that may happen? How do we get resilience and get sourcing from multiple different locations, et cetera. These are all things that by providing better information across the, I guess, the entire system, people are going to be empowered to do that.
[00:39:11] And that's one of the biggest changes that I see in the next three years is it's going to be a collection of different technologies coming together, but it's going to allow people to get much more predictive. What you said earlier, be offensive on defense and I think that change is gonna be one of the ones that drives a lot of the investment there.
[00:39:31] And then the sustainability around it, that's obviously an issue. So how do we do it? If you're doing it in a more efficient manner, you're going to have less unnecessary trips, unnecessary waste, et cetera. And then an area we haven't really touched on, but it's going to be important is, the recycling aspect of this and circular economy.
[00:39:50] So the amount, I mean, there's a lot of studies published on like amount of recommerce, where people buy five versions of the same dress to test it on and they send four back. Being able to better manage and process that inventory, make decisions as benefits to everyone from the retailer and being able to limit the cost of returns to the consumer to be able to give them a better experience and then for society that we're not throwing a bunch of unnecessary plastics and waste and et cetera in landfills, right?
[00:40:24] So I think there's things like that and just figuring out how we can make them more efficient supply chain system. They get really exciting and just what we talked about earlier, the shift from why are we doing this to how do we do it, how do we test? I think it's going to accelerate adoption in the next three years.
[00:40:42] Karl Siebrecht: That's fantastic. Well, Will, this has been really great, super informative and really fun as well.
[00:40:47] Will O'Donnell: This has been great, Karl.
[00:40:49] Karl Siebrecht: Again, Will, thank you so much. We appreciate you and we'll talk to you again soon.
Will O'Donnell: Perfect. Thanks, guys.
[00:40:57] Ben Dean: Wow, Karl, that's great conversation. I was really impressed across the board with Will.
[00:41:02] I didn't expect that to go so far into sustainability and green initiatives. Almost felt like we were back in that episode. What were your top takeaways in talking with him?
[00:41:11] Karl Siebrecht: Yeah, I agree with that. Man, I have a lot of takeaways. I was so engrossed in the conversation, didn't feel like I was even on a podcast.
[00:41:18] You know, to your point about him emphasizing the breadth of their coverage that includes sustainability issues. You know, he talked about EV, electrification of transportation. He talked about solar panels on top of this, you know, like 1.2 billion square feet of roofs out there in their portfolio. One point that jumped to mind is it just gives you a sense of how much the supply chain touches the world, right?
[00:41:46] I mean, this is a, what is it? 1.8 trillion dollars of spend in logistics just in the U.S., you know, eight something percent of GDP, and it is a supply chain, so it really is connected to everything else. But to think about investing in innovations and logistics kind of gets you pretty quickly to investing in industry, even pretty broadly.
[00:42:06] Ben Dean: Yeah, that connectivity in terms of supply chain is critical. So I really picked up on what he said about finding those areas where it's needed and not present and those areas are growing. That was the remarkable piece to me because he talked about this trend in logistics companies of unbundling.
[00:42:24] GXO is a great example of that spinning off from XBO in that specialized companies are valued by the market more. But at the same time, shippers and customers need connectivity. And so solutions in that space are very valued.
[00:42:38] Karl Siebrecht: That's exactly right. It is a supply chain. And that's, you know, step to step to step the flow of goods from origin to destination.
[00:42:44] Like that's gotta be not only connected, but ultimately optimized against cost, against speed, against carbon, against, you know, that whole set of SLA type of metrics that shippers have. All, by the way, in the service, ultimately, in most cases of an end consumer. So it's big, I guess, is the takeaway.
[00:43:05] It's a big, big, big category. And I'll tell you, like we thought he would have, he had a lot of great perspective on investing in a category that is a bit unique from other more classic traditional venture investing categories like SaaS software, of course, you know, over the past several years, AI driven solutions specifically. You know, the unique thing about this industry is
[00:43:34] the assets, you know, the atoms, and he gave that some voice as well, which I think he can do in a super clear, at least for me, a super clear way to tease out some of the nuances of investing in this space to not only drive innovation, but as an investor to drive and generate returns.
[00:43:55] Ben Dean: And he hasn't been investing in the space for a while here.
[00:43:57] I mean, you showed that McKinsey report in your conversation, it's been a new space for a lot of investors, right? That's right. And so in taking another look at this kind of overall innovation and investment and logistics piece, I wanted to follow that supply chain down to the next node in it. So for those investors, the companies that are recipients of investments, how that's being used to drive innovation on their side in the actual logistics space.
[00:44:26] So I got the opportunity to speak with Mike Griffin. He's the President of Razr Logistics. This is an important point here because Razr Logistics didn't exist up until last month. They actually spun off from Johnson Moving and Storage, a legacy business we're probably familiar with and used PE capital to create, again, a specialized logistics company focused on warehousing.
[00:44:50] So I wanted to see how they're using these same PE and venture capital funds to drive their business forward. So let's take a listen to Mike on why they've moved towards specialization and what they're able to do with it.
[00:45:04] Mike Griffin: You know, I think our huge advantage is getting away from the Johnson Storage and Moving and being a moving company that now we're a full fledged logistics company and that definitely is going to help us open doors and it's also going to give us some legitimacy and really help us I think going forward.
[00:45:25] Honestly, Ben, the fact that we're going to have capital to go out and to recruit from larger logistics companies is a win for us. That has not always been the case that we've had the ability to do that and being able to then take what are their best practices and then bring them into what will be Razr is only going to help our customer base and will help us, you know, Razr, continue to grow.
[00:45:51] Ben Dean: So Karl, we got the piece where he talked about the need for specialization, but as Will stated, this drives more connectivity needs against these separate purpose built companies. So let's hear Mike speak to the need for collaboration amongst these industry partners.
[00:46:07] Mike Griffin: No matter if it's, you know, the 3PL or just someone who's more of a technology based company that we're able to do more partnerships and help actually springboard us. And frankly, Ben, some of those opportunities that to DHL, DB Schenker, Ryder, you know, those large ones, we're not necessarily competing with them on any of those opportunities.
[00:46:29] You know, we're a smaller player. Do we see large opportunities? Yes. It's common for us to see six to 10,000 pallet positions, which is a very nice customer in my world. So it's really giving us a chance to grow and getting our foot into some of those. But I think with us getting those opportunities, it's actually opened some of their eyes to say,
[00:46:53] you know what? The smaller company, Razr, is coming to us with some really nice opportunities and it's an opportunity that we want, especially in our buildings right now.
[00:47:05] Ben Dean: So Will is a bit of a rare case, right, in this investing space inside logistics. What we've shown from that McKinsey report is there's a lot of new entrants in the space.
[00:47:14] For folks who aren't Will, there's a lot you have to learn in terms of the industry. And in fact, Mike’s PE backing is brand new. It's their first investment in logistics. So let's hear how Mike was able to navigate that with their PE capital fund.
[00:47:30] Mike Griffin: Our slang and our terms definitely throw them off. You know, you start to throw out
[00:47:38] a key term that we use every single day and they're asking, well, what's the definition of that? So it has taken us longer. I think the process of going through it and being purchased, it took us longer than I think it what it would be for someone who's already well familiar with the logistics industry.
[00:47:58] So we've had to do a lot of training, explanation of the terms and a lot of coaching on what it looks like. And frankly, you know, what it's going to look like in the future. But it definitely in the beginning was very difficult trying to get through just a lot of terminology.
[00:48:18] Ben Dean: Karl, before we end this, I'd want to bring it back to your conversation with Will, because this important stat of this two year plunge of 90 percent in funding for these investments in logistics, you talked a bit about that, but you didn't talk about where we're at today and where do you think it's going to go?
[00:48:37] So I want to put you out on a limb here. What do you think this future looks like for this investment space?
[00:48:44] Karl Siebrecht: It's a great question and you are putting me out on a limb here, which is totally fair. Here's what I've seen and read and heard from folks I've talked to in the space. It feels like the industry, just specifically venture investing, private capital investing in the sector, has hit the bottom and there are signs that it's starting to come back.
[00:49:06] The data supports that. There's data in PitchBook and other sources out there shows that kind of the low point was probably sometime in the last calendar year in 2023 and there are column green shoots, specific areas where investments are coming back, so I think it's beyond that assertion that I think we've hit the bottom and it looks like it's picking back up,
[00:49:31] I don't know how to make a bet on, is it going to grow a lot? Is it going to grow quickly? I think the answer to that has a lot to do with the broader capital markets in general, you know, interest rates and how those drive early stage investing. So I think we have to see, but I think that what is true is there have been a lot more investors come into the space.
[00:49:51] As we talked about earlier, one of the key ingredients for being successful is having some domain expertise. There's a lot more investors with more domain experience. Some of that experience has probably been pretty painful as this curve has come down. But what remains true, this is my perspective, and, you know, I'd imagine I wouldn't find too many people to disagree with this is there's still an incredible need for innovation in the space to drive the results that all big shippers have to sort of ultimately meet those needs of consumers out there.
[00:50:22] So more innovation is needed. There's a market demand. It's a huge market and where those things are true and there's a need for innovation that means there are investment opportunities for people that have capital. You know, beyond this near future view that, I think again, we've hit the bottom probably and we're starting to see growth again.
[00:50:42] It's really hard to predict, you know, are we gonna grow now quickly in terms of new capital flowing into the space? Is that gonna happen soon or is that gonna take several years? But here's something I do know and I will make a bet on. Is that the need for innovation in this space is still very, very real and the needs are big.
[00:51:03] This is a massive industry And there are a lot of goods moving across the globe every single year and there's massive amounts of inefficiency and kind of value left on the table. And where that is true, where innovation is needed and there's a lot of dollars that can come back in the form of investment returns, then that will continue to attract capital.
[00:51:24] So, hard to say when and how quickly the ramp will go up, but it's there.
[00:51:29] Ben Dean: So Karl, we're ending two episodes in a row now here on a very optimistic note, but where it remains to be seen is how much, when, where are we going to start to see things turn around?
[00:51:40] Karl Siebrecht: Yeah, I agree. It's all about when the bounce back is going to happen.
[00:51:43] So let's keep the conversation going.
[00:51:48] Narrator: You've been listening to the Logistics Leadership Podcast presented by Flexe. The opinions of the guests aren't necessarily the views of their company. If you'd like to learn more about the podcast or join the Logistics Leadership community, check out this episode's show notes and visit flexe.com/logisticsleadershippodcast. Keep the conversation going. Email us at leadershippodcast@flexe.com. The Logistics Leadership Podcast features original music by Dyaphonic. The show is produced by Robert Haskitt with Jeff Sullivan, Ben Dean, and Karl Siebrecht. Thanks for joining us.