The biggest story in the past weeks is the shuttering of Convoy – a leading digital freight broker. There’s been a lot of talk of the shutdown after the load board was abruptly wiped clean on Wednesday, October 18.

However, little has been said about what effect their sudden exit from the freight industry might have on carriers. So let’s talk about that.

We’ll start with the basics:

What is (was) Convoy?

Convoy is a digital freight brokerage, founded in 2015 to “find smarter ways to connect shippers with carriers while solving some of the toughest problems that result in waste in the freight industry.”

They developed what many industry leaders believe to be one of the most sophisticated technology platforms in logistics. Based in Seattle, Convoy attracted an impressive amount of technological talent and a number of high-profile investors, including Jeff Bezos and Bill Gates. It was valued at $3.8 billion as late as 2022.

Convoy shuts down

Rumors of Convoy seeking an acquirer (someone to buy out the business) were spreading earlier this year. When the company announced they were closing down their core business operations on Thursday, October 19, 2023, it was clear they hadn’t been successful in securing a deal.

Convoy CEO and co-founder, Dan Lewis, wrote a letter to employees stating that the company would keep only a small team to finish closing down operations and explore “future strategic options.”

But why did this happen? With all the hype around Convoy’s big promises to revolutionize the trucking industry, what went wrong?

It turns out that 2022 was not the year to aggressively grow a company in the freight market. The downturn in the market that started mid-year 2022 combined with the hike in interest rates created a perfect storm for Convoy’s downfall. In short, a thin profit margin and increasing cost of capital don’t mix.

A bad omen for brokers?

While the bankruptcies of mid-sized carriers like Flagship Transport and large carriers like Yellow Corp have dominated headlines, freight brokerages have faced a similar fate. In fact, the number of freight brokerages nationwide is at its lowest point since 2015, according to Freightwaves SONAR.

Other brokerages that filed for bankruptcy this year include Surge Transportation and Transplus Freight System. And according to Craig Fuller of Freightwaves, other mid-sized brokerages are headed the same way as Convoy as the gap between spot and contract market rates closes.

How does this impact carriers?

In the short-term, if you liked hauling for Convoy, of course, this is bad news. Carriers usually have plenty to complain about when it comes to freight brokerages. But surprisingly, multiple testimonies on Trucker Report lamented Convoy’s closing siting decent pay and the easy-to-use platform.

The pain of unpaid loads is also a concern for carriers with outstanding invoices. Depending on how the next few weeks play out, carriers may continue receiving payments or, in the case of a bankruptcy, file on Convoy’s surety bond.

In the medium-term, a collapse of multiple freight brokerages could cause more distress for carriers as they attempt to collect on unpaid loads or deal with chargebacks for factored invoices.

What can carriers do?

Here are some ways you can protect your business in this environment:

Learn to read financial health metrics for brokers.

You can find metrics like credit scores and days to pay on your load board and factoring platform.

The broker’s credit score and history is their ability to pay owed money. Days to pay is the average time for a broker to pay for a load. When these metrics are steady over many months, this is a sign that the broker has been able to maintain financial stability.

Remember, it’s not enough to look only at the number representing their current score. Analyzing trends can give you more insight into the broker’s future potential to pay. For example, if the broker’s credit score is trending downward and their days to pay are going up, this combination could be a sign of financial uncertainty or mismanagement.

For those factoring with us here at Bobtail, the credit rating we provide on brokers includes metrics like time in the business, business credit score, days to pay, and payment history with Bobtail. Our system provides a more complete picture of the broker’s financial health than other systems on the market.

You can factor invoices for brokers with a score between A and D. We will not factor invoices for brokers with a score of F. And while you can technically still work with a broker that rates an F with Bobtail by collecting on the invoice directly instead of factoring, we highly recommend against it. If every resource available to us hasn’t allowed us to collect payments from them, they are very unlikely to reliably pay a carrier directly.

Stay informed and read between the lines.

Convoy’s collapse was not a surprise to anyone keeping up with industry news.

Back in August, Freightwaves published an article reporting that Convoy had hired advisers to explore “strategic options that could include a sale of the company,” indicating that they were not in the best place financially. People who paid attention to this news thought twice before continuing to book loads with the company.

Top freight industry media outlets include Freightwaves, Land Line, and Overdrive. Subscribe to their newsletters and podcasts. The more you understand what’s happening in the industry, the better you will be able to anticipate and prepare for changes.

Knowledge is power – it’s a cliché for a reason.