How the pandemic has propelled maritime tech deals to new peaks
Maritime tech has never seen anything like the past 12 months: a whirlwind of deals that may be just the beginning.
“Clearly, there is an influx of capital, especially over the last year, and the pace is just continuing to increase,” said Evan Efstathiou, founder of consultancy SkySail Advisors. “Shipping is in the spotlight. The volume and velocity [of deals] is on a different trajectory than we’ve ever seen before. The enthusiasm is frothy.”
According to Marina Hadjipateras, co-founder of TMV, a VC firm with funds that invest in transportation, “There is money flowing in — more than ever — so there is an opportunity for shipping and supply chain tech. Valuations are very strong and they’re continuing to rise, especially as investors are paying more and more attention to this market.”
Shipping and supply chain is “a hot topic now, as hot as health care over the past few decades,” Hadjipateras told American Shipper. “It’s trending.”
Funding, company sales, IPOs
Among the many maritime tech companies getting funded in 2021: project44, $201 million; Sofar Ocean, $39 million; Xeneta, $28.5 million; NYSHEX, $15 million; DeepSea Technologies, $9.1 million; Voyager Portal, $8.4 million; Wave BL, $8 million; K4 Mobility, $5.7 million; Vizion, $3.25 million; Portcast, $3.2 million; and Greywing, $2.5 million.
The flow of new money continues in 2022. Flexport raised $935 million this month in a round led by Andreessen Horowitz, valuing Flexport at over $8 billion. Project44, which has a significant ocean presence, raised $240 million last month from investors including TPG and Goldman Sachs, at a valuation of $2.2 billion — a billion more than its valuation just eight months before.
There has also been an unprecedented number of company acquisitions involving maritime tech.
Last year, Alfa Laval bought StormGeo for $410 million; Kpler bought Clipper Data; ZeroNorth acquired Propulsion Dynamics; Lloyd’s Register acquired Greenstream; Spire bought exactEarth; Veson Nautical took over Oceanbolt; Accel-KKR bought Navis; FourKites built out its ocean offerings by buying Haven; and project44 acquired ocean platforms Clear Metal and Ocean Insights.
The acquisitions keep coming in 2022. In January, ZeroNorth bought Clearlynx and VesselsValue acquired Viamar. Informa is in the process of selling its maritime data and intelligence unit.
There have been public listings, as well. In August, Spire Global (NYSE: SPIR) began trading after a reverse merger with a SPAC; its current market cap is $437 million. In December, Windward sold $47 million of stock and listed in London (current market cap: $174 million).
Cargo and market visibility
Why the higher deal flow for shipping tech in 2021-22?
On the funding side of the equation, massive pools of money have been searching for returns in an era of historically low interest rates. According to CB Insights, startups overall received $620 billion in funding last year, by far the highest annual total ever and more than double the $294 billion recorded in 2020.
More of this money is finding its way to maritime tech because the three largest (and partially overlapping) categories of pitches — visibility, digitalization and decarbonization — are all hitting the mark simultaneously.
Visibility, as in “Where’s my cargo?,” is largely associated with container shipping. But all vessel types, including tankers and bulkers, are covered by the broader category of market visibility and ship tracking (by companies such as MarineTraffic, Kpler and CargoMetrics), with market intelligence used for decision-making, chartering, trading and investing.
Cargo visibility has received enormous attention in the COVID era, after pandemic disruptions created historic congestion and delays — and brought images of offshore traffic jams to the front page and the nightly news. From the Ever Given accident in the Suez Canal to over 100 ships waiting off Los Angeles/Long Beach to unfounded fears that the supply chain crisis would ruin Christmas, shipping has never been more in the public eye — and, in turn, the eyes of tech founders and investors, not to mention tech giants like Google.
On Wednesday, Google Cloud and Dun & Bradstreet (NYSE: DNB) announced a 10-year strategic partnership, with its first priority being “to solve the increasing challenge of managing supply chain risk.” Dun & Bradstreet will be the founding partner of Google Cloud’s Supply Chain Twin, and new solutions will be developed to “improve end-to-end supply chain visibility.”
Crunchbase called 2021 “a banner year for VC-backed supply chain management companies” and said that “funding shows no signs of breaking down.” Crunchbase data showed that $11.3 billion in funding was provided to supply chain companies, nearly double 2020 levels and 24% above the previous record year of 2019.
As more money flows toward the supply chain, more goes to the ocean sector.
During the Hellenic/Norwegian American Chambers of Commerce (HACC/NACC) shipping forum on Feb. 8, Nikos Petrakakos of Ursus Maritime Capital explained, “What has brought the initial interest in the shipping world from people who aren’t in shipping is that they realize, through these disruptions in the supply chain, that having investments in trucking and rail doesn’t necessarily alleviate everything — if one cog is not working, the whole supply chain is not working. They realize that there’s a lot of untapped opportunity in the cargo visibility side of things in the maritime industry.
“The initial attention is coming from later-stage VCs that are almost like a PE [private equity firm] looking for bigger companies and [to pay] bigger checks, whether it’s project44 or Navis, that kind of stuff. And then you also have increasing attention from the earlier-stage investors, like what Marina [Hadjipateras] is doing. There’s still a lot of different opportunities there. It’s a lot more nascent.”
“Supply visibility is huge,” said Hadjipateras. “Shipping is in the news more. People want to invest in tech that’s going to make the industry more efficient. It’s not just the niche shipping funds now. It’s also the top-tier venture funds that are focusing on this.”
On the increased momentum for maritime tech, Petrakakos said, “It seems to be a mix of various causes but COVID certainly has triggered some of these changes … [although] many of these things were already in motion before.”
The second big maritime tech pitch is digitalization: using technology to improve business processes and decision-making. As with visibility, COVID has acted as an accelerant.
Efstathiou told American Shipper: “Because of COVID and people working from home, companies have been forced to work differently. They’ve realized that certain processes that worked just fine when everyone was in the office weren’t working so well in a distributed workforce environment.”
Petrakakos said during the HACC/NACC event, “All the work from home has driven the digitalization side of things in shipping.”
The supply chain squeeze is yet another COVID-era driver of accelerated digitalization. Disruptions to the supply chain laid bare the need for more efficient and nimbler networks, whether cargo was on land or sea (a goal that overlaps with cargo visibility).
As Glasswing founder Rudina Seseri told Crunchbase, the supply chain industry had already realized before the pandemic that it was “going to get left behind” if it didn’t move on from pen and paper, “then COVID came and made it incredibly obvious and accelerated the adoption.”
The third big pitch for shipping tech focuses on fuel efficiency and decarbonization. It spans all vessel types and provides potential for tech solutions to scale.
The push to decarbonize shipping has been ongoing for years albeit progressing at a snail’s pace. The transition will require switching to a new fuel at some point in the future, and in the interim, reducing carbon emissions from the use of existing fuels — i.e., increasing fuel efficiency.
This interim requirement appeals all around: to startup investors, founders and employees looking to advance decarbonization, and on the other side, to ship operators looking to improve environmental, social and governance (ESG) credentials and, regardless of environmental concerns, reduce their fuel costs and thereby increase their profits.
Zero-carbon targets may be decades out, but new ship efficiency rules (the Energy Efficiency Existing Ship Index, EEXI, and Carbon Intensity Index, CII) come into play next year, as does shipping’s inclusion in the EU Emission Trading System. Even more immediately, the price of ship fuel is now on the verge of breaching all-time highs set in 2011 and 2008.
Nautilus Labs is a prime example of a tech startup targeting emissions by reducing fuel consumption; it raised $11 million in Series A funding in 2019 from investors including Microsoft’s M12 and Hadjipateras’ TMS. “Nautilus’ Series A was great for the industry and they’re going to continue to do larger rounds. They will be funded again, I’m sure,” affirmed Hadjipateras.
Regarding shipping’s overall appeal to sustainability investors, she said: “A lot of people outside the shipping world look at shipping as almost the opposite of sustainability, and it’s true that inefficiencies are causing ships to emit more emissions. But shipping is integral to the world, and if investors think about the fact that they can actually do something good for the environment [by investing in platforms that reduce shipping emissions], that’s a whole different pool of money that will come in, along with the people who are experts in transportation.”
For visibility and digitalization, COVID’s accelerant role is clear. Whether the pandemic played a similar role in decarbonization investment is open to debate.
Tuomas Riski of Norsepower Oy said during the HACC/NACC event that the “rapid uptake right now in emission-reduction technology” in shipping has four drivers: higher-than-ever fuel prices, expectations of future carbon pricing, compliance-based demand (related to the EEXI and CII regs) and the increasing importance of ESG to companies. “This all happened in the COVID period, but I don’t think COVID has been the real catalyst behind it. These things are just happening at the same time,” said Riski.
On the other hand, if COVID-era policies push funds toward riskier bets amid a low-yield environment, and if incentives push money toward climate-aligned investments, there could be a timing connection between COVID and climate-aligned VC investing in shipping.
There might also be business sentiment and psychological links between COVID and decarbonization. Hadjipateras noted, “There was a moment in COVID [during lockdowns] when air pollution was down and everything [with emissions] was so much better and we all sort of scratched our heads and thought: We need to change things and be more efficient.”
Back in April 2020, when the Western world was in lockdown, shipping consultant Basil Karatzas told American Shipper, “Maybe COVID-19 increases people’s awareness of what’s truly important in society.”
And in July 2020, JP Morgan published a report that posited an explicit connection between the pandemic and ESG. JP Morgan maintained that the pandemic could be a “major turning point for ESG investing,” because “as a result of the radical impact COVID-19 has had on global economies in such a short space of time, many policymakers and investors are viewing the crisis as a wake-up call” and “we believe that pandemics and environmental risks are viewed as similar in terms of impact,” ergo COVID “has renewed the focus on climate change.”
Despite the heavy deal flow in 2021-22, maritime is still relatively untrampled territory for technology investors compared to other industries. Even when it comes to the supply chain overall, the share of total funding remains small.
Commenting on what’s next, Petrakakos said, “There’s still a lot of fragmentation in the industry so I would say there’s still a lot of consolidation that’s going to happen in the future, which will probably attract that next step of investors.” In other words, the high pace of shipping tech company sales seen in the past 12 months should continue.
Petrakakos also believes that “using the data is the next step. So far, we’re just collecting data. The next step is actually using machine learning and AI [artificial intelligence] to give us actionable KPIs [key performance indicators].”
AI prospects were likewise highlighted by DeepSea Technologies founder Roberto Coustas in recent comments to Tradewinds. AI is the key selling point for London-listed Windward, and the Google Cloud-Dun & Bradstreet partnership also pointed to AI and machine learning. Efstathiou highlighted AI and machine learning potential, too. “I think people in shipping are picking up on this more,” he said.
In general, Efstathiou said of maritime tech’s prospects: “All of the stars are aligned on the money side, so the question is: Who’s going to come out with the innovation?” The further challenge is: “How do you scale up in shipping? You still come back to that question. It’s not an easy one to answer.”
Efstathiou also sees the potential for a lot more company acquisitions, including the possibility of larger funds deploying very large amounts of cash for major maritime tech acquisitions, then using those buys as a base to continue to roll up other maritime tech companies.
Hadjipateras predicted a lot of action ahead. She sees more IPOs, although she believes this option depends on “if a company can verticalize into different forms of transportation. It’s about how big the total addressable market is.”
She also expects more company acquisitions — driven more by tech platform buyers — and even more investments flowing to startups.
“I see more funding going into all of the platforms that exist. Funding and scaling is going to happen throughout all of this year. A lot of companies are going out now [to raise money], and there’s going to be a lot more funding for the industry over the next year, which is great.”
Source: Freight Waves by Greg Miller, https://www.freightwaves.com/news/how-the-pandemic-propelled-maritime-tech-deals-to-new-peaks