Company Cites Tough Market Conditions as Reason for Closure
In a surprising move, Seattle-based digital freight broker Convoy announced the shutdown of its operations due to what it referred to as a “massive freight recession.” The decision came just a week after supply chain software startup Flexport revealed plans to lay off about 20% of its workforce.
Convoy was founded with the aim of disrupting the fragmented and traditionally low-tech freight brokerage business, where truckers and customers relied on phone and fax communications. Until this week, the company had approximately 500 employees.
The dynamics of the logistics sector have changed significantly since the peak of supply chain disruptions and demand spikes during the COVID-19 pandemic, which led to skyrocketing prices in the logistics industry. Subsequently, trucking rates have normalized, negating what was previously viewed as a tailwind for Convoy’s on-demand technology. Like other startups in and outside the freight sector, Convoy had to undertake multiple rounds of layoffs over the past year and even closed down its Atlanta office.
In an attempt to weather the challenging conditions of 2022, Convoy secured $260 million in new capital from investors, led by Baillie Gifford and Hercules Capital based in the UK. Additionally, JPMorgan extended a $150 million line of credit to Convoy, valuing the company at $3.8 billion just 18 months ago.
Convoy is headed by co-founder and CEO Dan Lewis, who previously led new shopping experiences at Amazon and had a background at Microsoft. In a memo sent to employees on Thursday morning, Lewis acknowledged that the company had faced an “unprecedented freight market collapse” and “dramatic monetary tightening.” He stated that the combination of these factors had a detrimental impact on Convoy’s progress and also affected a potential strategic acquirer.
Convoy’s closure highlights the challenges faced by technology-driven startups in the logistics and freight industry, where market conditions and competition can evolve rapidly, and business strategies must adapt accordingly.