News / Flexport should park its Convoy tech until trucking's road gets smoother

Photo 102225221 © Heritage Pictures - Dreamstime.com

Trucking guru Satish Jindel has a piece of advice for Flexport on how to proceed after acquiring the tech stack of bankrupt online truck brokerage Convoy.

“Take the tech and put it away for a better day,” said the president of SJ Consulting.

Last week Flexport chief Ryan Petersen announced that his company was acquiring Convoy’s tech stack for an undisclosed sum in the wake of the brokerage’s collapse.

In a note to Flexport employees, Mr Petersen said the company would retain a small group of employees from Convoy’s core product and engineering teams, but not the full business or any of the failed company’s liabilities.

Convoy’s network included over 80,000 carriers and the acquisition will help Flexport make deeper inroads into trucking services, Mr Petersen commented, adding that a strong brand image and sophisticated procurement technology are further benefits of the acquisition.

According to various observers, the transaction allegedly involved only a relatively small outlay for Flexport, and the expertise that from the deal should be helpful. However, current market conditions do not augur well for a push into the trucking sector, said Mr Jindel.

“To go after truckoad brokerage business would be damaging,” he warned. “In this market, customers are only going to come to you if you have a cheaper rate.” And he added that, in light of Flexport’s own challenges, this could well become an additional burden for management occupied with the course correction after Mr Petersen returned to the helm, following the departure of CEO Dave Clark in September.

The US Bank Freight Payment Index for the third quarter starkly illustrates the state of the market. US trucking volumes fell 9.7% year on year, while spend on trucking dropped 12.5%. It marked the fifth consecutive quarter of declines in both categories.

“Across the board, our data is showing a continued decline of the truck freight market, especially compared with last year’s strong performance,” said Bobby Holland, director of freight business analytics at US Bank.

Compared with the second quarter, volumes shrank across all regions, from a 1.1% contraction in the Midwest to 9% in the west. The west also led the decline on an annual basis, with a 22.9% slump. The south-west was the only region that showed a small increase over the third quarter of last year, a gain of 3.3%.

Freight spend declined across the board year on year, ranging from a 2.8% decrease in the south-east to 17.9% in the Midwest. Compared with Q2, the south-west led the decline, with a 7% drop, while the north-east saw the lowest contraction, at 1.6%.

Trucker operating ratios also reflect the headwinds carriers are struggling with. Knight-Swift, PAM and Marten Transport all tabled numbers north of 90% in their recent earnings reports.

“The third quarter of 2022 was one of the best in our company’s history, while the third quarter this year faced an unprecedented unfavourable truckload market,” commented PAM president and CEO Joe Vitiritto, in his company’s earnings release.

The carnage in the industry has been dramatic, and more pain is yet to come, according to Freightwaves. It noted that an estimated 35,000 new trucking companies shut down in the 12 months to 30 September, and that it would require a surge on the scale of the 2021 demand rise to return the market to health.

In his announcement of the Convoy tech acquisition, Mr Petersen stressed that Flexport would not follow the failed brokerage’s playbook and chase Fortune 500 companies for their trucking business, which he described as highly competitive and so fraught with complexity that the system would he hard to scale and make a profit. Instead, he aims to leverage the trucking element as part of an integrated logistics offering.

However, Mr Jindel is unconvinced that a trucking element is vital for a successful play in end-to-end logistics offerings. He pointed to Expeditors International, which has fared well without having a truck brokerage, while CH Robinson’s push into international forwarding had not shown a significant advantage from its brokerage business, he said.