Convoy, the Seattle-based, Jeff Bezos-backed freight brokerage that shut down last week amid a financial crisis, is in talks to sell its technology to another freight logistics startup, San Francisco-based Flexport, The Wall Street Journal reported Friday morning.
The deal would provide Flexport with Convoy’s technology as well as a “small team of business, product and tech experts” from the Seattle firm, which canceled all orders and laid off hundreds of workers last week, The Journal reported, citing someone it said was familiar with the negotiations.
On Tuesday, a former Convoy employee told The Seattle Times that a buyer had been found, but declined to identify the buyer until the deal was finalized.
The Journal report offered no financial details about the deal, but said it wouldn’t include any trucking equipment, real estate or other physical assets, or result in Flexport taking on any of Convoy’s debts.
News of the sale comes two days after a laid-off Convoy employee sued the company for not giving legally required advance notice of the cuts. And according to an internal message shared with The Times, Convoy did not pay severance to laid-off workers due to its debts.
The Times reached out to Convoy and to Flexport to confirm the sale but had not received responses Friday afternoon.
If the deal goes through, Flexport intends to offer logistics services to Convoy’s former customers and partners, The Journal reported.
In a memo last week to employees, Convoy’s then-CEO Dan Lewis blamed the company’s sudden collapse in part on the broader freight industry downturn, which cut demand for the brokerage services Convoy had offered.
The decline also spurred more intense competition for remaining shipping demand, “which is crushing smaller companies,” Emily Nasseff Mitsch, an analyst at CFRA Research who covers trucking and rail, said last week.
Indeed, just a day before Convoy’s troubles hit the news, Flexport announced layoffs of around 20% of its workforce, including 165 employees in its Bellevue office.
Flexport hopes Convoy’s technology can help it return to profitability, The Journal reported.
If the sale goes through, it would mark the convergence of two big-dollar gambles on the modernization of the freight industry.
Convoy, founded in 2015, billed itself as a “digital freight network” that used sophisticated software to connect shippers directly to truckers and bypass the brokerage system that handles much of the scheduling in North America.
Flexport was founded in 2013 as a high-tech shipping intermediary, or freight forwarder, which buys space on container vessels and sells it to customers with freight to ship. Services today also include airfreight, trucking, cargo insurance and customs brokerage, among others.
Both Convoy and Flexport benefited from a surge in cargo demand and an acute shortage in global and domestic shipping capacity, exacerbated by the pandemic, which pushed up cargo volumes and shipping prices.
And both enjoyed star status in the tech community and among investors and venture capitalists.
Convoy raised $928 million in equity and venture debt, including from the likes of Bezos and Bill Gates, and as of last April was valued at $3.8 billion and employed 1,300 people, according to The Journal.
Flexport has raised $2.3 billion and as of February 2022 was valued at $8 billion, according The Journal.
But both companies struggled as cargo demand softened over the past year, pushing down prices.
Flexport’s revenues fell nearly 70%, to around $700 million, in the first half of 2023, according to a Sept. 14 article by The Information. The company’s layoffs last week were part of a plan by CEO and founder Ryan Petersen to cut costs by 25% and return the company to profitability by late 2024, The Journal reported.
Convoy’s technology and staff were seen as helping Flexport’s “push into the domestic U.S. trucking market,” according to The Journal.
The impacts of a sale for Convoy were less clear. In several recent posts, Lewis has said that his previous efforts to find a buyer and keep the company intact were scuttled by investor concerns over the industry downturn.
Shortly after The Times reported a potential sale, Lewis posted on LinkedIn that he was “heads down working on a deal that will include some of the Convoy team and our tech/services, and I’m more generally working to support others who were impacted.”
That deal appears to be with Flexport, though it’s not clear how many members of the Convoy team will be included.
On Tuesday, the state Employment Security Department reported that Convoy was laying off 533 workers as a result of the closure.
On Wednesday, Michael Pfingsten, who was laid off from his job as a Convoy customer account specialist on Oct. 19, sued the company for allegedly failing to give 60 days advance written notice of the layoffs, as required under the federal Worker Adjustment and Retraining Notification Act.
In the suit, filed in federal court in Seattle, Pfingsten claims he and “all similarly situated employees” seek to recover 60 days’ wages and benefits from Convoy.
Employers that violate the WARN Act can be liable for “an amount equal to the amount of wages and benefits for each day of the period of violation, up to 60 days,” according to the state Employment Security Department WARN FAQ.
Employers can be exempt from the 60-day requirement if they pay employees severance equal to 60 days’ pay and benefits, according to Lankenau & Miller, a New York law firm that is “currently looking into the facts and circumstances surrounding the [Convoy] layoffs,” according to a message posted on a Slack channel for former Convoy employees.
But Convoy appears not to have paid any severance in this latest round of layoffs due to its financial situation.
In an Oct. 19 letter to employees, Convoy said that, despite efforts to provide severance, the company’s “senior lenders are foreclosing on its assets, including its cash. The Company is unable to provide severance.”