Unconfirmed reports indicate freight startup Convoy’s problems were more profound than a “freight recession.”
The US-based company closed operations last week, failing to find an investor to buy the business. In a memo, co-founder Dan Lewis told employees: “Convoy will be closing down its current core business operations.”
FreightWaves believes it has something to do with Convoy’s trailer leasing cost. With 4,000 trailers under lease, it is estimated to cost the company around $20 -$25 a day. It further claims that Convoy could have earned up to $100,000 when the market was good. But when the markets collapsed, it changed the dynamics.
Not everyone agrees with this argument. “Convoy had a large-scale fleet with optimized procurement and maintenance. The cost per trailer was way lower. In the peak of tightness, we would make $1,000 in profit per load,” says a person on X, who claims he has built Convoy’s trailer business.
The latest from Convoy
Some team members have remained at the vacated building to handle the windup transition. On Thursday, staff received an internal memo confirming that the company was shutting down and that it would be their last day.
“There was tremendous demand during COVID-19 and in the past year or so. With interest rates going up, we see that demand flattening out. It depends on how the companies have handled that growth. Maybe they overstretched themselves, thinking that the COVID-19 demand would last forever. Those are the ones in the worst position,” says logistics expert Nick Fanelli.
Convoy says a “massive freight recession and contraction in the capital markets” led to its demise. It believes the climate “ultimately crushed our progress” and its logical strategic acquirer.
Fanelli says only companies who have experienced this high financial pressure previously weathered the storm. “Carriers are very hungry for volume. They’ve built these large networks that need delivery density, and right now, it’s just not in the market,” says Fanelli.
Convoy was not ready for the “perfect storm.”
Amid the tight financial turmoil in the freight sector the last 18 months, Convoy believes it “dampened investment appetite.”
There are concerns in the industry that more freight brokers could also close down.
Reaction from the business sector
While Convoy’s lips are sealed about what went wrong, the jury is out on online platforms like LinkedIn.
Chief operating officer at Cargo Stream, Sarunas Belickas, says: “Companies like Convoy, Sender, and other digital freight forwarders have shown that shippers seek client zones. Similar to how they book airplane tickets or pay for mobile phone services. However, their business model is broken.”
“The warning signs were clear on this one for quite some time,” says an enterprise sales expert, Lindsay Cardoso. “Excessive spending and ignoring basic business fundamentals only leads to failure. Regardless of industry, companies receiving funding need a path to profitability; you simply cannot count on endless capital injections.”
About the author
Mia is a multi-award-winning journalist. She has more than 14 years of experience in mainstream media. She's covered many historic moments that happened in Africa and internationally. She has a strong focus on human interest stories, to bring her readers and viewers closer to the topics at hand.
