In a recent Insights post on takeaways from TPMTech and TPM, we highlighted a notable description of our industry: “sclerotic, slow to innovate and overregulated.” That’s a honest take, and to us, we see an industry that continues to define itself as disconnected, inflexible and fragmented. The White House and industry trade organizations agree with us, too.
It is fair to say that disconnected and inflexible are negative traits, and Splice seeks to solve these problems. But what about fragmented? Fragmentation has several meanings, none of which are inherently bad. For instance, container supply chains are fragmented because they use multiple modes of transportation.
Market Fragmentation in The Tech Sector
To be clear, we are thinking about market fragmentation. This occurs when segments form based on customer preferences for product or service variations. Again, it is neither good nor bad. This could be called specialization, a seemingly positive term. Understanding market structure influences how to plan investments.
Take technology. Fragmentation can lead to poor data coordination, which arguably has slowed our supply chains and pushed the White House to intervene to encourage information sharing and interoperability. If we believe that the market is and will remain fragmented, then companies need tools to bridge gaps in information management systems.
The Future of Logistics: Fragmented or Consolidated?
This begs the question, will shipping remain fragmented? Yes, we think it will. News of XPO’s latest spinoff provides some evidence.
The former logistics and trucking powerhouse is becoming three companies: a logistics provider, a truck brokerage, and a LTL trucker. Brad Jacobs, CEO of XPO, said on CNBC that the strategic rationale was to be “more focused, more fit for purpose, more agile, more flexible, more nimble, more customer-centric.” These are all traits of segmented and specialized services.
Importantly, he noted that investors “want either an LTL, industrial play or non-asset, truck brokerage, tech-enabled play,” and “not as many investors that want both.” Jacobs likely would accept replacing investors with customers in that statement, because shippers have preferences best satisfied by distinct products and services.
Essentially, Jacobs is pointing to the persistence of a fragmented market as a key reason for breaking up XPO. This is where Splice’s ability to connect otherwise disconnected systems provides lasting value. The integration of distinct and disconnected systems will be a long-term and essential need.
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Final Thoughts on Fragmentation
It’s fascinating to see a company built on the strategy to combine these services decide to separate them. Market structures are hard to reshape. TPMTech had an interesting session on fragmentation that helped shape these views. Thanks to those who presented on this interesting topic.
Read more about a related issue in a prior post on competitive advantage. We dig into how Splice allows companies to ride the waves of competitive advantage to make the most of the latest data-sharing technologies.