Convoy’s plan to transform the trucking industry has come to a screeching halt.
The Seattle company is closing its core business and laying off a majority of its workforce. “We hoped this day would never come,” Convoy CEO Dan Lewis wrote in a memo sent to employees Thursday morning.
The startup sent shockwaves through the Seattle tech ecosystem and broader trucking sector after abruptly shutting down operations on Wednesday.
In the memo, Lewis said the company faced both an “unprecedented freight market collapse” and “dramatic monetary tightening.”
“This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer — it was the perfect storm,” he wrote in the memo, which you can read in full below.
Lewis said the company spent the past four months assessing all possible strategic options for the business. “However, none of the options ultimately materialized into anything sufficient to keep the company going in its then current form,” he wrote.
The memo noted “potential future strategic options” but did not mention an acquisition.
Before this week, Convoy had around 500 employees, down from a peak of about 1,500 people. The company raised $260 million at a $3.8 billion valuation just 18 months ago.
Laid-off employees reportedly did not receive severance.
Convoy certainly faced huge macroeconomic challenges. Freight demand has dipped, revenue per truckload is down, and there’s an oversupply of trucking companies.
Avery Vise, a trucking analyst with FTR Transportation Intelligence, said it’s a challenging time for freight brokers because truck capacity is plentiful. That means shippers can find attractive freight rates with large asset-based carriers — versus smaller trucking companies like the ones Convoy targeted.
Tim Denoyer, vice president and senior analyst with ACT Research, said he’s seeing shippers moving freight loads to their privately-owned fleets, which hurts the brokerage market.
At the same time, digital brokerages such as Convoy are facing a liquidity crunch, according to Craig Fuller, CEO at freight industry news site FreightWaves.
“Convoy was a victim of a violent commoditized industry that is facing one of its deepest recessions in decades and a sudden change in investor appetite from risk to unit economics,” Fuller wrote on Wednesday.
Convoy developed an Uber-like system that matched truckers with shippers. The company, backed by investors such as Bill Gates and Jeff Bezos, bet that its technology would reduce costs and increase utilization compared to traditional brokerages.
A former executive told GeekWire that Convoy didn’t build enough of a tech advantage. Other brokers either had similar apps or were “fast followers” and built new functionality.
Another former employee cited a tension between leadership over how Convoy positioned itself — as a tech company or a logistics company.
Speaking at a GeekWire event this summer, Lewis said Convoy leaned into tech more heavily as it started to trim expenses.
“We became even more of a tech company in the last 12-to-18 months,” he said.
Convoy said in April 2022 that it expected to surpass $1 billion in annual revenue. Then the layoffs began.
The company started trimming headcount in June of that year, just months after it raised the massive Series E funding round. Convoy went through another layoff in October 2022.
Then this past February, Convoy cut staff and closed its Atlanta office, which opened in 2019. Another round of layoffs happened in June.
Co-founder Grant Goodale announced that month that he would step down from his position as chief experience officer and transition to an advisory role.
Other logistics startups such as Flexport and Flexe, which grew rapidly during the pandemic, have laid off staff amid the broader market slowdown and a lack of available venture capital dollars. Convoy competitors, ranging from traditional brokerages such as C.H. Robinson and newer players including Uber Freight, are also struggling amid the shaky trucking market.
Reports emerged in August that Convoy was seeking a sale. But not many predicted that this week’s collapse was how the company would enter its next — or final — chapter.
Read the full memo below:
From: Dan
Re: Business Update
All,
As you’re all aware, over the past few days we’ve been taking actions to minimize disruptions to shippers and carriers by ensuring that all in-transit shipments get to their proper destinations. Thank you to everyone who stayed focused and got it done. As usual, you guys do amazing work. With that action nearing completion, Convoy will be closing down its current core business operations. Some of our team will continue on to handle this windup transition and potential future strategic options (all whom have already been spoken with), today is your last day at the company.
We hoped this day would never come. We spent over 4 months exhausting all viable strategic options for the business. However, none of the options ultimately materialized into anything sufficient to keep the company going in its then current form.
So, what happened? In short, we are in the middle of a massive freight recession and a contraction in the capital markets. This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer – it was the perfect storm.
Convoy’s tech centric approach to trucking created real benefits. It also created the conditions for a truly scalable technology platform and business model that would have yielded real financial gains when market conditions improve. But in the end, market forces were too strong for us to withstand on our own.
We moved all business levers possible. But we were running up the down escalator…. and it kept speeding up. So despite your excellent work on our product and service innovation, extensive revenue driving efforts, and the painful and sweeping cost cuts you have had to endure, it was still not enough to get us into the financial position necessary to withstand the increasing pressures of the industry, without the need for outside funding.
Alongside this unprecedented freight market collapse, the dramatic monetary tightening we’ve seen over the last 18 months has dramatically dampened investment appetite and shrunk flows into unprofitable late stage private companies. Add to that, amidst these freight and financial conditions, M&A activity has shrunk substantially and most of logical strategic acquirers of Convoy are also suffering from the freight market collapse, making the deal doing that much harder.
The perfect storm.
Following an exhaustive process, spanning many, many months during which we explored all viable strategic options for the business, the result is where we are today. Convoy is closing the doors on its current core business operations and exploring and evaluating strategic options for what might come next.
The work you’ve all done will leave its mark on the freight industry forever. This industry needs to modernize. Shippers want it, carriers want it, and the market wants it. We still believe that this will be the future for this industry.
As I just shared on our call, I think the world of you. Over the past few months I experienced some of the highest highs and lowest lows in business, but throughout it I remained motivated because of the incredible people at Convoy who gave me inspiration every day. You guys rock.
#TruckYeah,
Dan
