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Seattle startup Convoy bet on ‘Uber-izing’ trucking. Instead, it flattened truckers

By Paul Roberts, The Seattle Times
Published: February 10, 2024, 6:03am
2 Photos
Angadjot (AJ) Singh Sandhu, Wednesday, Jan. 10, 2024, in Auburn with the trucks he owns (the cabs), before returning Convoy trailers (what is pulled). Sandhu is owed $40,000 and also has other losses after his small trucking business used Convoy.
Angadjot (AJ) Singh Sandhu, Wednesday, Jan. 10, 2024, in Auburn with the trucks he owns (the cabs), before returning Convoy trailers (what is pulled). Sandhu is owed $40,000 and also has other losses after his small trucking business used Convoy. (Ken Lambert/The Seattle Times/TNS) Photo Gallery

Like many of the small-time truckers who bet big on Convoy, the Seattle freight startup that failed last fall, Angadjot Sandhu didn’t realize the ride was over until it was too late.

Sandhu, 37, started using Convoy in 2020 to find jobs for his one-rig trucking business in Kent, Washington. Convoy’s app, a kind of Uber for cargo, let Sandhu bid on freight from local companies more efficiently and often at a better price than through traditional freight brokers.

Within a year, Sandhu was so busy hauling Convoy loads that he bought a second truck and hired a second driver. By last October, Sandhu, a tall, soft-spoken Punjabi immigrant who also works on his family’s Central Washington commercial orchards, had five trucks, $500,000 in annual revenue and his own truck yard in Auburn, Washington. Convoy, he says, “was a revolution in the industry.”

It was a common reaction for many of the hundreds of thousands of truckers who were swept up in Convoy’s ambitious plan to digitally disrupt the century-old system of truck freight.

On Oct. 17, the Convoy revolution collapsed.

Late that evening, Convoy began canceling Sandhu’s scheduled loads, one after another. Sandhu told his drivers not to worry. He had contracts with Convoy. He knew Convoy employees and had even visited its posh headquarters in downtown Seattle. “They’re a multimillion-dollar company,” Sandhu told himself.

But two days later, Convoy said it was shutting down and laying off most of its roughly 500 staff due to a slumping freight market and balking investors.

Nearly four months on, Sandhu still hasn’t seen the more than $30,000 he says Convoy owes him. He has let drivers go and struggles in a market that no longer needs so many trucks. “If you could see my pressure right now, my stress level,” said Sandhu, standing next to his idled rigs. “This is a big hit.”

When Convoy closed last year, the headlines focused on the startup’s epic fall from grace. In a matter of days, a tech “unicorn” once valued at $3.8 billion and backed by Jeff Bezos, Bill Gates and even U2’s Bono had been shut down and its famous technology sold off.

But Convoy’s failure set off another, quieter collapse among the army of small trucking companies that Convoy built its business around.

Some haven’t been paid, although that number may be relatively small, according to several former Convoy employees who spoke on condition of anonymity to avoid complicating employment prospects.

Others were left with expanded, expensive operations in a down freight market, along with a tangle of broken business relationships and litigation.

Eagle Radovish is a literal mom-and-pop carrier in Illinois that grew from six to 11 rigs working for Convoy. The carrier is now fighting over $156,000 Convoy owes an intermediary that manages Eagle’s payments, according to Biljana Filipova, who runs Eagle with her husband. The dispute, she said, “is breaking my whole family.”

The matchmaker

Ironically, Sandhu and Filipova were exactly the sort of small-scale operators Convoy turned to as it took on the trucking business nearly a decade ago.

Most U.S. truck-hauled freight is moved under contract, often by big national carriers hauling loads for major companies such as Walmart or Costco.

But a significant share goes with smaller trucking companies and one-rig “owner-operators” who make up much of the U.S. trucking fleet. Smaller carriers frequently had to scrounge for jobs on online load boards or with commissioned brokers who often relied on phone calls, emails and personal relationships.

If Convoy could automate that load-to-truck “matching” though an easy-to-use app, founders Dan Lewis and Grant Goodale reckoned they could poach many of those smaller trucking companies, organize them into a virtual mega-carrier and win business from Fortune 500 companies.

Volume would be key. Convoy initially went after freight that bigger carriers didn’t want.

In the trucking business, carriers frequently reject contracted loads, often because they’ve found other loads paying better rates.

Rejected loads typically fall to backup carriers and then to the “spot” market, where any carrier can bid and where rates move with supply and demand.

Convoy believed its matching system would be so efficient that at high enough volume, those rejected loads would be profitable.

Convoy’s pitch to customers was “‘we will be your ultimate backup option,’” said Liz Ward, a former Convoy account development representative, at a November industry conference hosted by FreightWaves, a trade publication.

The “three to six principal”

Convoy didn’t initially target the smallest carriers. But when the app went live in late 2015, it was carriers with five or fewer rigs who used it most consistently, according to several former employees.

These smaller carriers soon formed the bulk of Convoy’s fleet and became the center of its strategy. As Lewis told Forbes in 2017, “Anything we can do to help these small trucking businesses on our platform, certainly we want to do.”

Convoy’s small-carrier appeal isn’t surprising. They often felt overlooked by brokers, who preferred working with midsized carriers, former employees said. A smaller carrier might need to contact multiple brokers to get a single load.

But with Convoy, even a one-truck operator could book like a boss.

The app showed all available loads from any company signed up with Convoy. It showed the rates companies were offering, confirmed deliveries, managed invoicing and eventually offered a two-day quick-pay option.

“It was pretty much a seamless process,” said Joseph Gersch, 33, owner of a two-truck carrier in Virginia who started using Convoy in 2019.

As important, as the Convoy app evolved, it let carriers outsource tasks normally handled by a dispatcher, such as GPS delivery tracking or customer service to sort out scheduling issues. Convoy was like having “a dispatcher without the salary,” Sandhu said.

This focus on savings was key to Convoy’s growth strategy. Early on, Convoy saw that when it helped smaller carriers reduce or avoid costs, they often used the savings to add trucks, which meant more capacity for Convoy.

Internally, the idea was called the “three to six principal” — meaning that with Convoy, a three-truck company could grow to six, said a former employee. “That was the value proposition.”

It proved effective. Eagle Radovish, for example, had six trucks when the company started driving exclusively for Convoy, last January, but quickly expanded, said Filipova.

Sandhu had just two trucks when he switched to working full time with Convoy, in early 2022, but soon added two more trucks and dreamed of a fleet of 13. “The growth I was doing — they let me grow that much,” Sandhu said. “Simple as that.”

The unicorn

Convoy wasn’t the only company trying to disrupt freight. Uber and Amazon both launched freight services and other startups were entering the space. Bigger carriers and brokerages were getting more digital.

But Convoy’s early success was getting traction with investors. By 2018, the startup had raised $265 million and was valued at $1 billion, the threshold for a tech “unicorn.” By early 2022, Convoy had raised nearly $700 million more and was valued at $3.8 billion, with much speculation about going public.

By then, Convoy was approaching 1,500 employees, including a huge engineering team to make that complicated matching technology. It had an operations center in Atlanta and had moved to a bigger headquarters in the 42-story Russell Investments Center, near the Seattle Art Museum.

Of course, Convoy still had just a small share of the U.S. trucking business. It was also still deeply in the red as it spent heavily on technology and built market share taking often marginally profitable loads.

But Convoy and its investors believed it would soon hit a critical mass.

As Convoy added more carriers, it was able to take more loads from more customers, which in turn let it recruit even more carriers, and so on. More loads also meant more data for Convoy’s engineers to steadily improve the platform and push down per-load costs. If all went to plan, the company would break even and start to profit by around 2024, according to a former employee.

And much of that growth in volume would come by continuing to appeal to smaller truckers — those already on Convoy’s platform, but also the newcomers flooding the market to take advantage of a pandemic-fueled spike in freight rates.

Convoy’s “drop and hook” program, for example, let drivers pick up preloaded trailers rather than wait to load at a warehouse, a timesaving service traditionally available mainly to large carriers.

Convoy even let carriers avoid having to bid on individual loads through “dedicated” contracts that guaranteed steady work at set rates.

Sandhu, who became dedicated in early 2022, knew it was risky to rely solely on Convoy. His family’s farm had nearly gone under when their sole fruit buyer went bankrupt in 2016.

Indeed, it was in response to that loss that Sandhu and his father diversified into transportation, first as Uber drivers in the Seattle area, and then as commercial truckers.

But Sandhu said any concerns about Convoy were allayed by its well-run operations and by its trappings of startup success.

Just before Christmas 2022, Sandhu paid a visit to Convoy’s headquarters in downtown Seattle. As he was shown around, he said, he was deeply impressed by the size and “high end” quality of the space, which had a “nice view,” all of which seemed proof of Convoy’s stability.

“They’re big,” Sandhu recalls thinking. “They look pretty solid to me.”

Burning $10 million a month

In fact, by Christmas 2022, Convoy’s volume-driven strategy was already deflating.

The pandemic-fueled freight boom had begun to cool in mid-2022.

As big companies moved fewer loads and shipping rates fell, Convoy’s revenues dropped. Even as it continued driving down per-load costs, former employees say, the company’s huge expenses were producing major monthly losses.

Convoy began cutting staff and closed its Atlanta offices in early 2023, but would eventually hit monthly losses of $10 million a month, according to The Wall Street Journal.

But investors were reluctant to bail Convoy out, former employees said, and by last August, Convoy was reported to be considering “strategic options that could include a sale.” Despite several near deals, Convoy ran out of time after a major backer, Hercules Capital, which had lent Convoy $100 million, essentially foreclosed on the startup, according to The Wall Street Journal.

Even before then, some carriers were worried. They were keenly aware that the market was cooling. Trucking companies were cutting staff or closing down: In August, Tennessee-based trucking giant Yellow Corp. filed bankruptcy. Some complained about deteriorating communication between Convoy and its carriers.

For others, however, Convoy was acting as if nothing was wrong. Around September, Convoy extended Eagle Radovish’s contract through December 2024, Filipova said, and offered a contract to Gersch, the trucker from Virginia.

As late as Oct. 16, Convoy was offering Sandhu extra work hauling at night, he said. Sandhu was so confident in Convoy that in early October, he paid $35,000 for a fifth truck.

Barely a week later, Convoy shut down.

Picking up the pieces

The months since Convoy collapsed have been a scramble as those once associated with the startup try to cut their losses.

At least two lawsuits have been filed in federal court on behalf of Convoy employees who were laid off in October without severance.

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Hercules sought to recover some of its loan by selling Convoy’s technology “stack” to San Francisco freight startup Flexport, which also hired Lewis and a small Convoy team. The sale price, according to someone familiar with the deal, was $16 million, or barely 2% of the roughly $1 billion investors put into Convoy.

Neither Flexport nor Lewis would comment on the sale for this story. Co-founder Goodale stepped down from Convoy’s leadership in June.

As for Convoy’s former carriers, the picture remains cloudy.

After the shutdown, a skeleton crew of Convoy workers were kept on to collect funds owned by customers and pay carriers, two former Convoy employees said. But it’s not clear how long that effort lasted or who was left unpaid; queries to a member of the collections crew and to Hercules got no responses.

Soon after the closure, Gersch said he reached a Convoy employee who was able to approve $3,000 in invoices, but couldn’t get the funds released.

Some carriers are hoping for help from the courts.

In one case, household furnishings maker Ikea is asking a federal court in Illinois to decide whether $519,254 owed for Convoy deliveries should go to Hercules or to 42 former Convoy carriers, including Eagle Radovish, and other intermediaries.

Equipment companies, meanwhile, are still hunting for some of the thousands of trailers leased to Convoy for its drop-and-hook program.

Hari, a California-based carrier, tried to hold onto four of the trailers as leverage for $100,000 it lost after Convoy failed to pay Hari’s factor. The plan fizzled after the trailer-leasing company reported the trailers as stolen and police showed up, said Rajiv Goswami, Hari’s chief operating officer.

Goswami doesn’t blame the equipment companies. Anyone who worked with or for Convoy has a legitimate grievance, he said, “except for Convoy, who screwed up everything.”

Sandhu, meanwhile, is scrambling to get back on track.

He hasn’t had any luck getting payment directly from his former shipping customer. And though he landed new work, including from Amazon Freight, with so many smaller carriers anxious for jobs, he hasn’t gotten enough to cover the cost of a business that got much larger under Convoy.

Last month, Sandhu heard that Flexport plans to revive the Convoy platform and possibly bring on former Convoy carriers. Yet as much as he misses the Convoy app, he’s leery. Flexport also has been slashing staff, with 400 more layoffs last week. And in any case, Sandhu said he’ll never again rely on a single broker.

Still, Sandhu remains upbeat. He hasn’t sold any of his trucks, in part because there aren’t many buyers, but also because he wants to be ready when the freight market rebounds.

He credits that hopefulness to his life in farming, a cyclical business, much like trucking, where the inevitable bad years make optimism a job requirement.

“Losses are part of life,” Sandhu said. “Simple as that.”