Watch Now

Freight.Tech 25: Silicon Valley money and the network effect lead Convoy to #4

( Image: Convoy )

Just three years after its founding in Seattle by two former Amazon executives, the leading digital freight brokerage Convoy reached a unicorn valuation and took the #4 spot in the Freight.Tech 25. Dan Lewis, co-founder and CEO, worked at Microsoft and Google before serving as the GM of New Shopping Experiences at Amazon. Grant Goodale, co-founder and CTO, was the CEO of game company Massively Fun before taking a position at Amazon as a Software Development Manager. 

The idea behind Convoy is relatively simple: automate the time-consuming, error-prone process of matching loads to trucks; by eliminating human intermediaries, Convoy wants to offer cheaper logistics services to its shipper customers and pass through more money to its carriers. In theory, an app can cover loads with less overhead than a room full of human brokers and as Convoy absorbs more market share and drives margins down, less tech-driven competitors won’t be able to keep up.

In September, we spoke to Andrew Davis, a vice president at T. Rowe Price, which participated in Convoy’s $185M Series C round. We wanted to hear what Davis thought about the deal because that round marked the first time that traditional institutional investors and asset managers—-as opposed to Silicon Valley VC firms—had bought into the Convoy story.

“To be very candid, freight matching is a math problem, and math problems, especially in a network, are all solved by Metcalfe’s law, and in this context, we feel that Convoy has the strategy and the ability to execute because they’re looking at the problem in a different way,” Davis explained. 

Metcalfe’s law states that the effect of a telecommunications network is proportional to the square of the number of the connected users of the system; in layman’s terms, this means that the load-matching advantage a larger brokerage has over a smaller competitor is exponential, not linear. 

The theory behind Convoy is simple; the equations are straightforward and elegant. But people aren’t that simple. A 3PL truism is that “it’s a relationship business” and yes, trust-based human relationships often contribute to a level of customer service that traditional brokers use to differentiate themselves. How can an app automate the user experience—the carrier experience—in a satisfactory way? How can an app automate user engagement and happiness?

Convoy didn’t stop with their breakthrough idea and best-in-class algorithms. Lewis and Goodale realized that for carriers to continue using Convoy, the company must create superior service and product offerings. So Convoy kept innovating.

In March, we called Convoy’s detention guarantee “one of the most brilliant things we’ve seen in a while”: Convoy automatically pays detention on any loads that carriers book through the Convoy app. Convoy knew that its cost per load was much lower on its app rather than through its voice brokers, and it also knew that collecting detention and accessorial fees is a major pain point for small carriers. Convoy’s app accelerates payments and collections for the carrier while reducing its own overhead.

In May, we reported on Convoy’s “revolutionary” Power-only program, a gray trailer pool that gives owner-operators access to desirable—and lucrative—drop-and-hook freight. After all, detention isn’t just about the money, it’s about the hours of service and revenue lost when inefficient dock operations force drivers to park their trucks when they could be running more miles. Small carriers and owner-operators don’t have huge networks of trailers strategically placed throughout the country to speed their passage through distribution centers and warehouse lots. 

Then in August, Convoy announced another product offering, this time aimed at shippers: “Dynamic Backup.” When volatility enters freight markets and tender rejections spike, shippers have a difficult time sourcing capacity and controlling their transportation costs. After waiting two hours for each carrier to issue a rejection, the shipper is forced to resort to the spot market, where it can pay hefty margins to traditional brokerages just to have its freight handled by an unfamiliar carrier it have little visibility into. With Dynamic Backup, Convoy inserts an instantly bookable, realtime market rate into shippers’ routing guides, and just as importantly, guarantees the capacity

“We want to solve the problem, reduce overhead, increase coverage, and reduce shipping costs,” Himani Jain, senior product manager for Dynamic Backup, told FreightWaves.

It has become increasingly clear to the industry that not only does Convoy have advanced technology and talented software developers, but the company’s executives possess a deep understanding of how to keep users engaged in its network. After making its initial tech-based value proposition, Convoy quickly rolled out a series of products designed to solve trucking pain points in a way that makes sense for its business model. That’s why transportation and logistics professionals voted Convoy the #4 most innovative company in the Freight.Tech 25. 

John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.