Various media reports are indicating that Seattle-based digital freight broker Convoy is taking steps to wind down its business operations.
When it was established in 2015, Convoy described its business model as “a new approach to trucking,” digitally connecting shippers and carriers to the Convoy platform, applying machine learning models to more efficiently match carriers to loads.
Fast-forward to April 2022, Convoy announced $260 million worth of new funding, including a $160 million Series E preferred equity round led by Baillie Gifford and funds and accounts advised by T. Rowe Price Associates, Inc., a $100 million venture-debt investment from Hercules Capital, Inc.; and a new $150 million line of credit, the company said it wasvalued at $3.8 billon.
AWall Street Journalreport, citing people familiar with the matter, stated that Convoy has “suspended operations and is winding down its core business as it seeks alternatives that may include selling its technology,” adding that the company was “hurt by crumbling freight demand over the past year, [and] is exploring selling off teams, software or intellectual property.”
An August report published byThe Informationnoted that Convoy reportedly hired an investment bank this year and was weighing different options, including a potential sale of the company.
What’s more, in aJournal of Commercereport published yesterday, a Convoy customer advisory said: “As of this morning our team has been directed not to accept any new tenders and to cancel any tenders expected to pick up in the next 72 hours. Any shipments in transit will be delivered as scheduled.”
Bloombergreported that Convoy has reduced its staff down to about 500 people from a peak of 1,500, and was on track to run out of money in a matter of weeks. The article added that a majority of the remaining employees will be let go in an effort to make Convoy more attractive to potential acquirers—most likely established companies in the trucking industry that the startup was trying to disrupt.
This development comes at a time of lower demand for freight transportation and logistics services, which have weighed heavily on providers of these services, resulting in a freight recession that has been intact for more than a year. At the height of the pandemic, demand for services that Convoy and its competitors provide was in high demand, as consumers purchased more goods than usual online, driving the need for increased freight capacity.
Ben Gordon, founder and managing partner of Palm Beach, Florida-based Cambridge Capital, and managing partner of Ben Gordon Strategic Advisors (BGSA), called this situation a shame.
“I believe Convoy built compelling technology and hired a lot of talented people,” he told LM. “But it highlights that in the end, economics trumps marketing. The winners in logistics technology will be the companies who can not only innovate but also demonstrate compelling unit economics.”
In a LinkedIn post, Nikhil Sathe, managing director of Logisyn Advisors, explained that in an article his firm published in September that digital freight brokers, especially those who attracted venture capital money based on inflated proforma valuations would go the sale or exit route due to pressures from their investors’ groups.
“These companies like Convoy could not quickly transition from ‘grab the market share’ to effective margin management,” he wrote. “Current market is characterized by margin squeeze, volatile volumes and high inflation. VC money has dried up leading to severe cash flow issues for such companies. These Investors for too long didn't hold these digital brokers accountable to superior freight unit economics. We don't think this slide would end at Convoy as these broker models are inherently flawed, they have been exposed by the current market conditions.”