The rapid roll out of myriad maritime tech firms in recent months and their soaring valuations has put some analysts on alert that shipping could be approaching another tech bubble.
Writing on LinkedIn, Lars Jensen a partner at SeaIntelligence Consulting and regular Splash contributor, questioned whether tech valuations for certain companies are beginning to diverge from reality.
Jensen cited two examples to back up his argument. First, he looked at Hong Kong’s blockchain-based 300cubits which is launching Ethereum smart contracts to address non-conformance to contract terms. 300cubits has launched its own cryptocurrency called TEU. 300cubits held a pre-ICO funding round which concluded in late September 2017. At that point in time, one TEU had a price of $0.24 – in turn implying a total market cap of $24m. In early January 2018 – three months later – the company announced a round for private placement in their Telegram group at a price of $2.8 per TEU. Jensen observed that the valuation of this shipping tech concept has increased by more than 1,000% in just three months to a market cap of $280m. Moreover, this valuation comes at a point where live trials according to the company’s roadmap are still in the future.
The second example given by Jensen is the digital freight platform, Flexport.
Flexport has a valuation 19 times higher than a traditional freight forwarder. “Fundamentally speaking this boils down to whether you believe an innovative way of moving freight can make you so much more profitable than the traditional way of being a freight forwarder. What if the increased efficiency instead manifests itself as lower costs for the cargo owners, just as we always see when liner shipping companies obtain better efficiencies only to have it eroded by lower freight rates?” Jensen mused.
In concluding, Jensen stated: “I have no doubt that shipping will undergo significant digitization in the coming years. But that does not conversely mean that all tech solutions out there will necessarily thrive – and it may well be that some of the valuations we are beginning to see in shipping are rather optimistic.”
Kris Kosmala, from software firm Quintiq and another Splash regular columnist, questioned whether it was too early to call the current tech rush a bubble, preferring instead to describe it as “irrational exuberance”, a term coined by former US Federal Reserve chairman Alan Greenspan.
“All these shipping tech start-ups look great against the background of an industry which is quite conservative as a whole,” Kosmala argued.
The true value of these shipping digital enablement companies will be determined at the moment the larger names decide to acquire the smaller players and allow exits of early investors, Kosmala suggested.
Constantine Komodromos, co-founder at digital chartering marketplace VesselBot, argued that not all start-ups were targeting an exit via an acquisition by default. Some, he suggested, are aiming towards listing on stock exchanges.
“I would neither call it a bubble nor irrational exuberance in general,” Komodromos said.
Another Splash columnist, Neville Smith, founder of Mariner Communications, maintained the current phase of tech development in maritime was not a financial bubble per se.
“We’re not in a bubble in a financial sense – the main proponent of autonomy is in play, not prepping for IPO – but there are an increasing number of people who’ve never run ships telling the industry what it’s doing wrong – so there are echoes,” said Smith, who covered shipping’s original dot com boom and bust at the turn of the century as a reporter for Lloyd’s List.
Smith said digital was something the industry could not ignore. “It has to sift the hype from reality and understand where it can really add value, rather than imagine it is blessed with inherently transformative powers,” he advised.
Jenna Brown, co-founder of new dry bulk broking tool Shipamax, said start-ups could not be compared to traditional industries in terms of valuations.
“For a true definition of a start-up, a totally different valuation approach is needed,” said Brown, who counts the founders of Yahoo and Paypal among her investors. “If a start-up has raised at high valuations from credible VC players, the likelihood is there’s a story that hasn’t yet been told,” she elaborated.
K D Adamson, founder of advisory Futurenautics, agreed with Brown saying that shipping had so far failed to understand the real value of most of these tech start ups.
“Company valuations are notoriously contentious but really innovative technology companies that enable whole new business models and value propositions could well justify those valuations if they can get traction in the industry,” Adamson said. She also took issue with two examples cited by Jensen on LinkedIn.
“Blockchain is a key technology for the future and Flexport has Y Combinator’s Paul Graham as an investor – these are real tech companies which the industry isn’t used, to but the rest of the world is. If there’s a bubble around then it’s the one shipping’s been existing in,” Adamson concluded.