Pallet uses AI to bring logistics into the 21st century

Transportation and warehousing are multi-trillion-dollar industries, but the technologies that power them are often outdated, inefficient and siloed. Pallet, which is announcing an $18 million Series A funding round led by Bain Capital Ventures today, has built an all-in-one transportation and warehouse management system that uses AI to help these businesses streamline their operations from order entry to dispatching drivers, managing inventory, and accounting.

Pallet CEO and co-founder Sushanth Raman was an early engineer at low-code startup Retool before he left to start his own company, together with his co-founder — and fellow Retool engineer — Andrew Spencer. Both actually have family in the logistics business. Raman’s grandfather was in this shipping business while Spencer’s father runs the engineering team at transportation management company MercuryGate.

That, however, wasn’t actually what got Raman into this space, he said (though I’m sure it helped). Instead, it was meeting with different logistics businesses around the Bay Area and realizing how much of the work was still being done manually. Sometimes, half the employees in a logistics company are tasked with back-office work and customer support.

“Logistics is a massive industry. It’s trillions and over $30 billion is spent on these software systems known as transportation and warehouse management systems,” Raman explained. That’s a massive addressable market.

Meanwhile, even as a lot of the work is still done manually, the industry is also rapidly digitizing, especially as it adopts what are carrier scorecards, which are essentially a way to evaluate a carrier’s performance across a number of KPIs like response times, being on time, cost, compliance etc. “All of a sudden, your technology is now a huge revenue driver, because if you’re not responsive enough, you won’t do enough business with the shipper anymore,” Raman said. This means that unlike in other industries that still often rely on Excel spreadsheets and manual data entry, there is a real incentive in the logistics world to become more efficient with the help of new technology.

“What Palette really is, is like a modern OS for moving any physical product from point A to B,” Raman said. And like with any modern OS (just look at Microsoft), there’s AI involved. The core idea here is to use AI so that users won’t have to enter orders or respond to quote requests manually, for example. Raman explained that in the ideal world, Pallet will enable what he calls ‘contactless orders.’ “An order starts and gets sent to you, and you can deliver it without a human in the loop. I think that’s where the whole industry is headed,” he said.

Specifically, this means that Pallet plans to offer AI agents that can automate many — and maybe all — of the steps traditionally needed to make the logistics industry flow.

Eighteen months into the process, Pallet has gone from zero to a $3 million annual run rate, he told me, and has acquired about 60 customers. At those businesses, 90% of employees have accounts and 70% use the tool every day. In part, that is because Pallet does cover the entire process from when a shipment is received by a logistics provider all the way to when the payment is made.

Right now, Pallet mostly works with companies that do short- and long-haul shipments or deliver bulky items like furniture or appliances. In the long run, it wants to go beyond that and also handle e-commerce shipments. Already, Pallet says that some of the teams that use the service have seen a 70% reduction in workflows like order entry.

The company’s current focus is also mostly on trucking, but it plans to go beyond that over time, too.

Bain Capital Ventures’ Kevin Zhang noted that his firm — and also Bain Capital itself — has long been interested in the logistics space. Bain Capital Ventures also backed Kiva Systems, which is now Amazon Robotics and whose robots power the e-commerce giant’s warehouses.

“That investment really showed us these tailwinds that are still really powerful today: this movement towards e-commerce, which reorders supply chains and logistics and consumer expectations around that,” he said. “We’ve met teams over the years that have tried to tackle this. We feel like there’s a big, multi-billion dollar opportunity still to be realized here.”

Bain also led Pallet’s $3 million seed round and decided to double down by also leading the company’s Series A now. Bessemer Venture Partners and Activant Capital also participated in this round, as well as angel investors like Zach Frankel, Toast founders Aman Narang and Steve Fredette, Dutchie CEO Tim Barash, Home Depot board member Manuel Kadre, and Cedar Capital partner John Curtius.