Dan Lewis, co-founder and CEO of trucking logistics startup Convoy and a former Amazon executive, speaking at the CNBC Technology Executive Council summit it New York City on Oct. 29, 2019.
Astrid Stawiarz/CNBC
Digital freight broker Convoy told employees Thursday that it's shutting down operations due to a "massive freight recession." The move comes just one week after supply chain software startup Flexport said it will lay off about 20% of its own workforce.
Seattle-based Convoy was founded to disrupt the fragmented, low-tech freight brokerage business, in which truckers and customers connected by phone and fax. Before this week, the company had about 500 employees.
Convoy is a five-time CNBC Disruptor 50 company that ranked No. 47 on this year's list.
Since the peak of supply chain issues and demand spikes during the Covid-19 pandemic, which led to soaring prices in the logistics space, trucking rates have come back down, removing what was thought to have been a tailwind for Convoy's on-demand technology. The company, similar to other startups both inside and beyond the freight sector, conducted multiple rounds of layoffs over the past year and cut an Atlanta office.
During a tough 2022 for the sector, Convoy secured a $260 million round of new capital from investors, led by U.K.-based Baillie Gifford and Hercules Capital, while JPMorgan extended a $150 million line of credit to Convoy, valuing it at $3.8 billion just 18 months ago.
Convoy is run by co-founder and CEO Dan Lewis, who formerly led new shopping experiences at Amazon and before that worked at Microsoft. According to a memo sent to employees Thursday morning, Lewis said the company faced both an "unprecedented freight market collapse" and "dramatic monetary tightening."
"This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer — it was the perfect storm."
Here's the full memo:
All,
As you're all aware, over the past few days we've been taking actions to minimize disruptions to shippers and carriers by ensuring that all in-transit shipments get to their proper destinations. Thank you to everyone who stayed focused and got it done. As usual, you guys do amazing work. With that action nearing completion, Convoy will be closing down its current core business operations. Some of our team will continue on to handle this windup transition and potential future strategic options (all whom have already been spoken with), today is your last day at the company.
We hoped this day would never come. 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.
Convoy's tech centric approach to trucking created real benefits. It also created the conditions for a truly scalable technology platform and business model that would have yielded real financial gains when market conditions improve. But in the end, market forces were too strong for us to withstand on our own.
We moved all business levers possible. But we were running up the down escalator…. and it kept speeding up. So despite your excellent work on our product and service innovation, 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.
Alongside this unprecedented freight market collapse, the dramatic monetary tightening we've seen over the last 18 months has dramatically dampened investment appetite and shrunk flows into unprofitable late stage private companies. Add to that, amidst these freight and financial conditions, M&A activity has shrunk substantially and most of logical strategic acquirers of Convoy are also suffering from the freight market collapse, making the deal doing that much harder.
The perfect storm.
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. Convoy is closing the doors on its current core business operations and exploring and evaluating strategic options for what might come next.
The work you've all done will leave its mark on the freight industry forever. This industry needs to modernize. Shippers want it, carriers want it, and the market wants it. We still believe that this will be the future for this industry.
As I just shared on our call, I think the world of you. Over the past few months I experienced some of the highest highs and lowest lows in business, but throughout it I remained motivated because of the incredible people at Convoy who gave me inspiration every day. You guys rock.
#TruckYeah,
And
