The reports of turbulence at Convoy broke yesterday after FreightWaves published an article that claimed Convoy’s loads were about to be canceled.
The US industry news service says it has seen communications that Convoy sent out to customers, in which it is stated that “several necessary steps” were being taken in order to “prepare Convoy’s business for a transition that we will have more details on in the next 48 hours.”
FreightWaves added that a spokesperson for Convoy did not specify what the transition could involve.
Fortune also claims that according to “people familiar with the matter,” Convoy has already reduced its workforce by 500 staff from a peak of 1,500. In addition to this, the same sources reportedly told Fortune that Convoy “was on track to run out of money in a matter of weeks”.
The Wall Street Journal has also been covering the story. Its sources state that Convoy is “seeking alternatives that include selling its technology”.
Bloomberg has weighed in on the matter as well. It too claims to have spoken to “a person familiar with the matter,” who said Convoy will “slash hundreds of jobs” as part of preparations to “woo prospective buyers”. Maersk and Walmart are said to be among the potential suitors, though neither party has yet commented on the matter.
Speaking to the Seattle Times, Jim Contreras, group manager for transportation at the Sumner office of Ryder E-commerce by Whiplash, offered some potential reasons for Convoy’s downfall.
“For some of these companies like Convoy, this is their first big recession. When they got into this slowdown, they’re like, ‘What do we do now? How do we turn this around?’” Contreras said yesterday.
Contreras added that Convoy “just don’t have the reserves,” possibly because it was powered via venture capital. That, in turn, means the company might have encountered problems securing more funds from backers.
Co-founded by CEO Dan Lewis and CTO Grant Goodale in 2015, Convoy has raised hundreds of millions of dollars in a series of funding rounds over the last 8 years. One of the most significant of those cash injections was in April 2022, after which the company was valued at $3.8 billion. Convoy has household name backers as well, including Jeff Bezos and Bill Gates.
However, this year things haven’t been plain sailing for the company. In August, it was reported that Convoy had hired an investment bank as part of plans to weigh up different options, including a potential sale of the company. There were also layoffs made in June.
Admittedly, 2023 has been a rocky one for a number of digital logistics companies, and Convoy is not alone in encountering difficulties.
The most highly-reported example of this has been at Flexport, which has laid off hundreds of workers and rescinded offer letters since founder Ryan Petersen returned as CEO to replace former Amazon supremo Dave Clark.
In a statement regarding the change, both Petersen and Clark said that Flexport was “not immune to the macroeconomic downturn that has impacted businesses around the world”.
“Our customers have been impacted by these challenging conditions, resulting in a reduction to our volume forecasts through 2023. Lower volumes, combined with improved efficiencies as a result of new organizational and operational structures, means we are overstaffed in a variety of roles across the company,” wrote Petersen and Clark.
Global supply chain visibility provider project44 hasn’t been immune either. In May of this year, the company went through an organizational restructuring in which around 10% of its total global workforce were laid off.
At the time, CEO Jett McCandless told FreightWaves:
“In the height of the technology boom, startups could secure millions in funding in mere days. With increased market volatility, we’ve seen a broader shift in the [venture capital] landscape as investors become more cautious. Investors have shifted from a growth-at-all-costs mindset to focus on the path to profitability and scalable growth. No startup, not even the rocket ships of logistics technology, will be immune to these trends.”
Amid these and other developments in the digital logistics & supply chain space, skepticism about rapidly growing tech startups is beginning to become more apparent in industry circles, particularly on LinkedIn. Some critics are accusing companies of focusing too much on marketing, and being more style than substance as a consequence.
Chief among those voices has been logistics consultant Anthony Miller, who spent over 6 years working at supply chain software company WiseTech Global as Corporate Development Manager among other roles.
Writing on LinkedIn just before the news about Convoy broke, Miller said that some companies in the space have been guilty of three mistakes; throwing money at marketing rather than building a product, using buzzwords rather than trying to solve real pain, and using employees as a disposable resource instead of building sustainable structures.
He added that some of the industry’s biggest “darlings” had “seemingly little to show for nearly a decade’s worth of efforts”.
“It feels like now it is less about what we need, and more about what is going to happen. Without the “easy” funding, and the “hype-train” that really hit the industry in recent times, it feels like we’re on the path of a logistics technology catalyst, and not a good one,” said Miller.
Nick Coverdale, co-founder of TMS developer Utanga Technologies, has been another vocal critic.
Taking to LinkedIn last week, Coverdale branded the digital forwarder model as a “failure”, and suggested that many of the businesses in the sector had failed due to being run by privileged individuals that shed money to further their own ego and have fun.
While the views of Coverdale and Miller may not be representative of the logistics industry as a whole, it is clear that the prevalent market conditions are placing more demands on logistics startups.
When asked about the investment climate in June of this year, Lucien Besse, CEO of supply chain visibility provider Shippeo, told trans.iNFO:
“When someone says that suddenly the market is asking for profitability, and a sustainable way of managing the company and that layoffs are being made because the market wants it, it surprises me.”
Besse stressed that Shippeo itself was not immune to market impacts, but added:
“Of course, what’s happening in the market impacts everyone. Even so, we’ve always tried to manage the company in a responsible way. This is what we care about at the end of the day – being able to anticipate things and make reasonable decisions for the company.”
FourKites, another big player in the supply chain visibility sector, have also spoken of their intention to be careful with growth plans (although they too announced a few layoffs in early autumn 2022).
Speaking to trans.iNFO in the summer of 2022 on the subject of acquisitions and responsible growth, CEO Mathew Elinjickal said:
“We really have to measure ROI for every dollar that we put into the market. That’s what investors expect. What investors are really looking for is a path to profitability. They’re not looking at how much it should grow year over year. Yes, it’s great if you’re growing. But if you don’t have a path to profitability in the next 24 months, then you’re not going to be rewarded in public markets.”
Elinjickal added:
“Given the new market conditions – tumbling valuations of publicly traded companies, the start of a bear market, inflation and more, it’s not the money raised that will be key. It is capital efficiency – how are you building your business? Is it pursuing high growth at any cost? That burns a lot of money.”
At the time of writing, Convoy has yet to make a public statement concerning its aforementioned transition. However, irrespective of what the outcome is, the current economic climate means it is inevitable that some tech startups seeking investment will have to up their game to prove they have a path to profitability.