6 minutes

Dennis Katsnelson

Logistics Company Was on Pace to Run Out of Money in a Few Weeks

Convoy, a trucking startup, announced its closure to employees and investors on Thursday, in a dramatic fall of a business that garnered over $1 billion from major investors such as T. Rowe Price, Fidelity, and CapitalGz. Convoy abruptly ceased accepting new business this week and is laying off the majority of its employees, with only CEO Dan Lewis and a small number of employees remaining as the company attempts to sell its technology. According to a memo to Convoy's supporters, Lewis reminded the company's equity investors that even if the company is sold, they will not receive any money back.

Convoy Inc. is ranked No. 54 on the Transport Topics Top 100 list of North America's largest logistics companies.

"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," Lewis wrote in the letter. "Convoy is closing the doors on its current core business operations and exploring and evaluating strategic options for what might come next."

"We hoped this day would never come," Lewis continued. However, none of the possibilities resulted in something substantial enough to keep the organization running in its current form."

The majority of the Seattle-based company's employees were let go.

Massive freight recession

According to Convoy, there has been a "massive freight recession and contraction in the capital markets." The current environment, it thinks, has "ultimately crushed our progress" and its natural strategic purchaser.

Lewis described the situation that eventually brought the organization down as "a perfect storm."

Lewis attributed the shutdown to a freight slump and a decline in the capital markets. He remarked that these developments exacerbated the company's efforts to locate viable strategic solutions, while also reducing the likelihood of a prospective rational strategic acquirer. Lewis referred to it as a "perfect storm."

"Convoy's tech-centric approach to trucking created real benefits," he stated. "It also laid the groundwork for a truly scalable technology platform and business model, which would have resulted in significant financial gains as market conditions improved." However, market forces proved too powerful for us to withstand on our own. We shifted every business lever we could. But we were sprinting up the escalator."

"Along with this unprecedented freight market collapse, the dramatic monetary tightening we've seen over the last 18 months has significantly dampened investment appetite and shrunk flows into unprofitable late-stage private companies," he added. Add to that, in severe freight and financial conditions, M&A activity has slowed significantly, and the majority of Convoy's logical strategic acquirers are also suffering from the freight market collapse, making deal-making that much more difficult."

Lewis complimented his team for remaining focused as the company approached its end. He praised them for navigating expense cuts earlier this year while the company struggled to stay afloat. "The work you've all done will leave its mark on the freight industry forever," Lewis remarked. This industry requires modernization. Shippers, carriers, and the market desire it. We continue to feel that this is the industry's future."

Convoy was formed in 2015 to develop software that connects shippers and carriers. Following numerous successful investment rounds and a slew of renowned technology investors, including Microsoft founder Bill Gates and Amazon founder Jeff Bezos, the company's profile in the transportation technology industry rose. Before founding Convoy, Lewis worked for Amazon, Google, and Microsoft. The closure comes a day after allegations surfaced that Convoy was halting new orders as part of internal efforts to minimize disruptions. Lewis stated in the memo that, while a small group of employees remained to assist with the wind-down, for the most part, it was their last day on the job.

There are fears in the business that additional freight brokers may be in a similar situation soon. When cargo volume rose due to the COVID-19 pandemic, the freight broker business boomed. Volumes have decreased, and delivery costs have declined considerably.

"Some banks have been lending money to a number of these digital brokers, and their balance sheets don't look great," says Locate2u CEO Steve Orenstein. "Hopefully, these businesses can sort of control their costs and funding and recover."

Building something new is daunting

"Building something new is daunting, but much less so when you're surrounded by like-minded talent and a community that wants you to win," Lewis tweeted last month on X (previously Twitter). That's the approach at Convoy when it comes to creating new things...but it turns out that this continues beyond our doors. Convoy alumni have founded numerous enterprises."

Lewis also discussed the future of trucking earlier this year. In May, he wrote on X: "The future of trucking is the hybrid carrier, a new model that leverages technology to overcome long-standing industry fragmentation and finally provide shippers with the benefits of economies of scale." He had no idea that he'd be closing down the company five months later.