Letter to employees signals Convoy closing its doors on core business operations

Following heavy speculation in recent days that it was taking steps to wind down its business operations, Seattle-based digital freight broker Convoy is officially closing down its current core business operations, according to a company letter sent to Convoy employees from Convoy CEO and Co-Founder Dan Lewis.

In the letter, Lewis said that today is the last day for the majority of Convoy’s employees, with the exception of a few who will handle the windup transition and potential future strategic options.

“We hoped this day would never come,” wrote Lewis. “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.”

What’s more, Lewis said that the company “moved all business levers possible,” amid “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.”

And he stressed the current market conditions—in the form of an unprecedented freight market collapse; dramatic monetary tightening seen over the last 18 months, which has quelled investment appetite and shrunk flows into unprofitable late-stage private companies; and current freight and financial condition—has led to a major decrease in M&A activity. Which has, in turn, impacted most of Convoy’s logical strategic acquirers that are also dealing with the same freight market issues and impacting the ability to get a deal done.

Lewis called the combination of all these factors “the perfect storm.”

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 was valued at $3.8 billon. 

The company also secured a $150 million line of credit from J.P. Morgan. It has raised over $900 million. Investors include Bill Gates and Jeff Bezos as well as Generation Investment Management, Fidelity, Durable Capital Partners, Capital G, Lone Pine Capital, Greylock Partners, Y Combinator, Salesforce CEO Marc Benioff, Code.org founders Hadi and Ali Partovi and U2’s Bono and The Edge. 

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.

Founded in 2015 by Grant Goodale and Dan Lewis, the company has gone through a series of layoffs that have cut its staff from more than 1,500 to a reported 500 to 700 employees. Goodale stepped down in June.

Convoy has continued to push innovation in the broker space – announcing a just-in-time delivery guarantee window of 15 minutes in August – but brokers have been hit particularly hard this year as the freight market resets after COVID and supply chain disruptions, and an economy that has slowed from the red-hot market of the past few years.

The Information, in August, reported Convoy had hired an investment firm to explore its strategic options, which included seeking more funding or a possible sale. The venture capital market has collapsed this year and companies have struggled to raise funds.

In its 2022 funding announcement, Convoy touted having 400,000 trucks on its marketplace and included top shippers Home Depot, Procter & Gamble, Unilever and Anheuser-Busch among its customers.

Evan Armstrong, CEO of Milwaukee-based supply chain consultancy Armstrong & Associates, said that with the freight recession those 3PL models which emphasize spot-market versus contractual shipper business have seen the largest declines in business.

“Even digital freight brokers such as Convoy with leading tech are not immune from the overall spot-market declines in rates and volumes,” he told LM. “It has been looking for additional funding/investment, but with high interest rates, a lot of financial investors are on the sidelines.”

Brian Straight, Supply Chain Management Review Editorial Director contributed to this report.