In early 2020, a transportation executive evaluated Convoy Inc., a digital freight broker, and expressed skepticism about its prospects. The executive suggested establishing an operation in Chicago and hiring experienced brokers to leverage technology for greater productivity.
Convoy seemed confident, however, in its advanced technology and disregarded the executive’s suggestions.
Convoy’s decision to prioritize technology over the human factor is significant considering recent events. The company went from a $3.8 billion valuation in Q1 2022 to shutting down within 18 months, leaving most employees without severance.
The collapse also affected high-profile investors such as Bill Gates, Jeff Bezos, T. Rowe Price, and Baillie Gifford. Convoy raised approximately $920 million in funds from various sources.
Now, Convoy is attempting to sell its driver app and auctioneering algorithms, which minimize human intervention and automate freight movement. Potential bidders have shown interest in the technology.
Overall, Convoy’s downfall serves as a cautionary tale about the need to balance technology with the human aspect in the transportation and logistics industry.
A story of macroenvironmental factors and internal issues
The trucking industry has been hit hard by the macroenvironment, leading to decreased freight demand and rates. Brokers, including Convoy, have been affected, facing intense pressure on their margins. The high costs of capital have also played a role, with venture funds demanding profits instead of just growth. Many companies were unable to comply, leading to their downfall.
Convoy’s shutdown was not solely due to external factors, however. The co-founders, Lewis and Grant Goodale, lacked experience in trucking and freight. They believed in the power of advanced technology but overlooked the competitive market filled with experienced brokers. Their “build it and they will come” mindset was unsuccessful, especially with thousands of brokers competing and using technology.
Convoy struggled to determine costs and price services profitably. Shippers supported a cost-saving model, but it did not benefit Convoy’s margins. Even when rates were high, Convoy barely broke even. Lowering prices to gain market share worked for less-than-truckload segments but not for point-to-point truckload business.
Convoy initially focused on building density in critical lanes but later shifted to improving profitability. However, their efforts were delayed by the pandemic. The company managed to reduce operating expenses by 50% in late 2020 and 2021.
Convoy’s load-matching technology catered to owner-operators instead of micro fleets, limiting their load generation potential. Another challenge was the payment terms of their shippers, who required a longer payment period than Convoy had to pay carriers. This created a cash flow problem.
According to industry expert C. Thomas Barnes, Convoy failed due to a lack of insider know-how. While technology is crucial, traditional problem-solvers are needed for success.
Convoy’s failure reflects a larger problem where good ideas from outsiders are overlooked due to a lack of balance between insiders and new ideas.
Despite claims that Convoy lacked freight talent, the company had hired individuals from the industry. The narrative suggesting otherwise was likely an attempt to discourage potential competitors.
Convoy’s shutdown highlights the challenges faced by the trucking industry and the importance of balancing technological innovation with industry expertise.
Running out of time
Convoy’s failure highlighted the challenges of a weak market and lack of support from venture funding. Despite their efforts, the company simply ran out of time. However, their impact on the industry was undeniable. The outpouring of sentiment on social media acknowledged the significance of Convoy’s mission in advancing the legacy brokerage business through technology.
Lars Ward, VP of Business Development at digital logistics startup FreightVana, acknowledged Convoy’s influence in changing the way technology is seen in the industry. They praised Convoy for chasing a vision to better connect freight to carriers, which challenged other brokers to respond with their own innovations.
Matt Silver, a seasoned executive and investor in the FreightTech sector, echoed these sentiments. He highlighted Convoy’s driver app, which brought previously offline capacity online and improved the industry’s sense of capacity availability.
Despite Convoy’s untimely demise, their legacy lives on through the heightened competition among top freight brokerages to improve their IT value propositions.
Source: FreightWaves
