Why Transportation does not attract relevant Startups

A thing that is bothering for over twenty years is that transport does not seem to attract significant investments and innovations in its sectors. While the IT industry still follows Moor’s law (respectively an abrevation of it), transport does not seem to evolve and attract disrupting new players.

The role of private players in transport over time

Transport has in the past played mostly a significant role in military movements and warfare. While the linkage of stone roads allowed vast troup movement across the Roman empire, railways played a significant role in the first and second world war – including the military conflicts before them. The results of the military importance of railways is still seen with the different gauges across indo-china or the African continent.

The upcoming of the US railway tycoons in the 19th century has had not only transformative character of the transportation industry but also allowed large privatization from the postal services to many and competing players. It enabled the industrialization and can be perceived as a foundation stone to the wealth that we are living in today. With the consolidation, de-privatization and regulation in the early 20century, this phenomenon in the railway industry has been again transformed in a setting where transport became more and more understood as a public service.

In the aviation industry, private players have after their introduction remained to be important participants in the market. Still, most of the large players are public companies which collaborate strongly with the respective government and lobby to keep out any start-ups.

But why is it that we do not see a large number of new entrants in rail, car/coach, aviation industry that bring new concepts and try to change how the industry work?

In my opinion, there are two relevant aspects to that questions: Entry barriers and the value chain concept (respectively higher order value)

Entry barriers

If you intend to start a new transportation company today, you need capital, lots of capital. This is most possibly the most difficult hurdle to overcome. When starting a business, capital and costs for capital require a fast and growing business success to realize sufficient payback.

Regulations and governmental requirements in aviation and railways have been set in a way, that it requires time and adequate funding to even attempt to enter the market and grow a business.

Customers often do not seek to change – price elasticity is very low – since transportation costs are perceived only as a minor portion of ones budget. This is not the case in the shipping industry where transport has become literaly a commodity, customers switch all the time (and most companies are not profitable anymore). There the age of the fleet (or minimal investments) play a more important role.

Where to settle in a value chain

Another aspect why we might not see too many start ups is that it is difficult to decide on what value/offer should be provided. In the value chain, there are not many places where one can make a profit and where the business is not vertically intgrated to cross subsidize other parts of it. In other terms: Higher order value concepts, such as amazon, could only work if one would go for a simple software platform (such as all these mobility-as-a-service providers) or try to emulate one of these integrated businesses (and ending up with the entry-barrier problems.

So far, I do not see a simple solution how to include more start-ups in the industry and spur more innovation (that we definitely need)…

 

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