Bezos-backed Convoy to lay off staff, close operations

Seattle-based freight startup Convoy is closing down business operations and laying off most of its staff, according to a memo sent to employees Thursday morning by CEO Dan Lewis.

The abrupt shutdown, which reportedly affects several hundred staffers, comes just a day after the high-tech freight brokerage halted all shipments and advised customers to find alternatives.

Convoy, a privately held firm that had won hundreds of millions of dollars in backing from tech players like Jeff Bezos and Bill Gates, appears to have lost the confidence of some investors amid a slump in the freight business.

In the memo, Lewis said some staff would stay on to manage “this windup transition and potential future strategic options,” but for the rest, “today is your last day at the company.”

A company spokesperson shared the memo with The Seattle Times but did not respond immediately to questions about how many staff were affected or whether they would receive severance packages.

Going into the week, Convoy had around 500 employees, according to GeekWire.

Lewis, an Amazon veteran who co-founded Convoy in 2015, blamed the company’s sudden collapse in part on the broader industry downturn, which has cut demand for the brokerage services Convoy offered.

But Lewis also suggested that investor concerns about the downturn had torpedoed efforts to find a buyer for Convoy and keep the company intact.

“In short, we are in the middle of a massive freight recession and a contraction in the capital markets,” Lewis wrote. “This combination ultimately crushed our progress at the same time that it was crushing our logical strategic acquirer — it was the perfect storm.”

Convoy has also gone through several rounds of layoffs this year and had already shed around two-thirds of the staff it had at its peak, according to media reports.

Although Convoy’s troubles had been known in trucking and tech circles, the speed of its collapse seemed to catch some insiders by surprise.

On Wednesday, FreightWaves, an industry news site, reported that Convoy had told customers that “all shipments have been canceled from our marketplace.” The Wall Street Journal also reported that Convoy had stopped accepting shipments and suspended operations. 

It was a stunning fall for a company that, barely a year ago, was valued at nearly $4 billion and was talking about going public.

Convoy had billed itself as a “digital freight network” that used sophisticated software to connect shippers directly to truckers and bypass the brokerage system that has traditionally handled much of the scheduling.

While a large share of trucked cargo today is hauled by big national trucking firms for precontracted prices, a significant share still goes with smaller trucking companies and independent truckers, often for a price negotiated by brokers on the spot. 

Convoy aimed to bypass those traditional brokers, which often worked deals by phone, with “machine learning and automation” and an app that would allow carriers with cargoes to find truckers with empty trailers. Convoy’s system would cut out brokerage fees while also reducing waste, the company said. 

Convoy was one several firms aiming for “the Uber-ization of U.S. trucking,” as Bloomberg put it last year.

Convoy’s model initially won strong backing from investors, which allowed the company to ramp up hiring and build out its platform. By late 2022, the company had a network of more than 400,000 trucks and “a roster of shippers including Home Depot, Procter & Gamble, Unilever, and Anheuser-Busch,” according GeekWire.

Convoy also benefited from a surge in cargo demand and an acute shortage in global and domestic shipping capacity, exacerbated by the pandemic, which pushed up cargo volumes and shipping prices.

By April 2022, Convoy had raised $928 million in equity and venture debt and was valued at $3.8 billion, according to The Wall Street Journal. The company’s head count was up to 1,300, and included many veterans of the Seattle-area tech community.

Mark Okerstrom, Convoy’s president and chief operating officer, had been a chief executive and chief financial officer of the online travel company Expedia Group. Lewis and co-founder Grant Goodale had worked at Amazon.

And, like most venture-backed firms, Convoy and its investors were also considering going public, the Journal reported.

But even by last April, cargo demand was softening and prices were falling, especially in the “spot” market that is the bread and butter of brokerages, the Journal reported.

The decline spurred more intense competition for remaining shipping demand, “which is crushing smaller companies,” said Emily Nasseff Mitsch, an analyst at CFRA who covers trucking and rail.

On Monday, another freight industry startup, San Francisco-based Flexport, announced layoffs of around 20% of its workforce, including 165 employees in its Bellevue office.

But freight startups had another problem. Many weren’t yet profitable and still depended on outside financing, according to media reports. But investors, which had already begun to pull back from a cooling tech sector, now became doubly wary of freight ventures.

“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,” Jett McCandless, founder and CEO of project44, a supply chain data company, told FreightWaves after cutting around 130 jobs last spring.

“No startup, not even the rocket ships of logistics technology, will be immune to these trends,” McCandless added.

In his memo to employees, Lewis seemed to acknowledge investors’ cooling ardor for companies that have yet to turn a profit. 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,” Lewis wrote.

Industry insiders say that without that additional funding, and lacking the cash reserves that more profitable freight companies had accumulated during the pandemic, Convoy’s options were limited.

Lewis told employees that the company had “spent over 4 months exhausting all viable strategic options for the business,” but couldn’t see a way to turn the company around.

“Despite your excellent work … 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,” he wrote.