Above the Fold: Supply Chain Logistics News (October 20, 2023)

By Adrian Gonzalez

If you had a time machine, would you travel to the past or the future?

I go back and forth on this question. At the moment, I would travel to the past.

How far? Certainly back to before social media was created.

Or maybe back to before nuclear weapons existed? I’m not sure if it’s possible,

but if so, I would go way back to the Garden of Eden, sit beneath the Tree of Knowledge

and guard it with my life from anyone looking to eat it’s forbidden fruit.

—-

Here’s the supply chain and logistics news that caught my attention this week:

Convoy: A Logistics Unicorn Dies

The big news this week is that Convoy — which was valued at $3.8 billion just 18 months ago — is shutting down its operations. Here’s an excerpt of the statement by Convoy’s co-founder and CEO Dan Lewis:

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.

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.

In an CNBC article, Riley de León writes that “Seattle-based Convoy was founded to disrupt [emphasis mine] the fragmented, low-tech freight brokerage business, in which truckers and customers connected by phone and fax.”

The word “disrupt” is always a red flag for me because true industry disruptions are very difficult, very rare, and most attempts end in failure. Disrupt often implies “disintermediate” too. A safer, more proven approach, especially in the freight industry, is to improve the way existing industry stakeholders (shippers, carriers, drivers, brokers, and receivers) work with each other — by eliminating waste and inefficiencies, improving employee and customer experiences, and reducing risks and costs.

Back in August 2019, I wrote a post titled, “What Digital Freight Isn’t.” It was one of the most popular posts that year. As I wrote at the time, and remains true today:

Digital Freight isn’t bringing additional new capacity to the market.
Digital Freight isn’t drastically changing the contract vs. spot mix for shippers.
Digital Freight isn’t fundamentally changing the formula for success in the industry.

I encourage you to read the post for my thoughts on the first two points. But here’s what I said about the formula for success in the freight brokerage industry:

It doesn’t matter if you’re a startup or an established provider, the formula for success in the freight industry remains the same and it depends on three things: (1) you have to build a critical mass of shippers and carriers and drivers; (2) you have to remember that transportation is not a commodity and that relationships matter (and take this reality into consideration in your operating model); and (3) you have to measure and control the quality of the end-customer delivery experience.

Yes, technology is becoming increasingly important for success too, but if you’re missing those other things (as well as a lack of financial discipline), you’re not going to make it far. A painful lesson to learn for investors who poured almost $1 billion into Convoy over the past eight years, including $260 million in April 2022.

And on that sobering note, have a happy weekend!

Song of the Week: “Just To Keep You Satisfied” by Inhaler