If you have a business with a bright idea on how to make supply-chains run better, come collect your winnings. Venture-capital investment in supply-chain technology has gone through the roof this year. According to FreightWaves, investment exceeded $7 billion for the third straight quarter. That’s approximately double the investment made in the fourth quarter of 2020. Investment in 2017 was below $2 billion per quarter.
This explosion in capital is exactly what one would expect in a free-market system experiencing a crisis. Lots of people are upset right now with skyrocketing shipping costs. That means there’s a lot of money to be made in solving the problems that are making people upset. So the supply-chain sector becomes more attractive for investment than it was before, and lots of ideas that might not have gotten funding last year will now be able to get funding.
Plenty of these investments won’t pan out. There’s lots of failure in venture capital. But some of these investments might have huge positive impacts on the future of transportation in the U.S., and the sheer volume of investment means there are lots of chances for breakthroughs.
Private investment is especially important in transportation since many of the most important parts of the sector are privately owned. Trucks, trailers, trains, tracks, ships, port terminals, airplanes, and the information systems they all run on are privately owned. The government is certainly involved, with publicly owned highways, airports, and seaports. But solutions are much more likely to come from private money than public money.
Public spending, such as the new infrastructure law, is beset by myriad concerns that have little to do with transportation. Disbursing the funds appropriated in the law has been left to a larger-than-ever Department of Transportation, thereby making transportation secretary Pete Buttigieg very powerful in determining what projects get funded. It’s safe to say that private investors working with supply-chain businesses probably know more about where investment is needed than the former mayor of South Bend.
Public funding also won’t touch certain areas. The government spending on port infrastructure, for example, is not allowed to go towards port automation technology because politicians wanted to protect union dockworker jobs. Private investment faces no such strictures.
Where public–private partnerships exist in transportation, they mostly involve state and local governments, not the federal government. State and local government revenues are way up in 2021, and those governments can use that money to invest in ports and highways when needed.
There’s also reason to believe that in some respects federal spending will make outcomes worse because of all the strings attached. As Scott Lincicome and Ilana Blumsack pointed out in October, the infrastructure bill includes “Buy America” provisions, prevailing wage rules, and burdensome environmental-review requirements that will make projects take longer, cost more, and be less effective than they otherwise would be.
The influx in private investment into supply-chain technology is a cause for optimism. It indicates that market signals are reaching the people they need to reach to get money flowing to the right places to have a chance at making a difference. Our supply-chain problems did not arise overnight, and pandemic-emergency measures won’t solve them. The trial-and-error process of innovation is well under way. Solutions will mostly be piecemeal and won’t grab headlines. But there is considerable room for new ideas, and entrepreneurs see a chance to make money implementing them.