Exploring the Shortcomings of Convoy in Trucking

This was a guest contribution written by Ruslan Shamanov, Founder & CEO of Kavkaz Express, LLC.

Exploring the Shortcomings of Convoy in Trucking
Credits to Reed Loustalot for this humorous take on Convoy.

Recent news that Convoy has ceased operations and is seeking potential buyers (Looks like Flexport is acquiring them) and that Surge Transportation has filed for bankruptcy, make us wonder what went wrong with these new and modern technology companies. Who is up next?

In order to understand the circumstances of their failure, it is significant to analyze their business plan and what they focused on. The main goal was to "uberize" the transportation industry: both came up with great tech solutions and driver-friendly apps for the spot market. By cutting out the middleman, the broker, and connecting the shipper directly with the truck driver, the aim was to alter the market dynamics. An alternative method of purchase or usage, introduced to the shipper/customer and truck drivers was user-friendly and was supposed to play the role of brokers, digital brokers.

According to the concept, shippers and drivers would search for loads and available trucks and book directly through their platforms. This gave both parties transparency, live updates, secured paperwork flow, quick payment process, etc. The idea was simple: shippers post loads and truckers could see the loads and make bids. The algorithm would pick a driver with the lowest bid and allow him to move it. Digital brokers work transparently with customers, so they take a fixed commission on that transaction.

For example, if a load from point A to point B is booked for an X amount of dollars, the customer will know exactly how much he paid to the driver, and on top of that, the customer will pay a fixed commission to digital brokers.

Back in 2015, I remember reading one of the first articles about the new startup of Convoy and frankly, I was very impressed with their business idea. I immediately contacted them and offered my services as a trucking company, however at that time they operated only out of Seattle,  and my trucks were operating in Colorado and the Midwest. Only a few years later we were able to establish our partnership with Convoy once they started operating nationally. Ever since that concept sparked my excitement.

Now, several years down the line, seeing these companies going out of business tells us that things didn’t go according to our predictions. Over the past two or three years I have been thinking about this concept and lately reflecting on possible reasons for this outcome.

I would like to share with you some of my points as to why digital brokerage has not yet succeeded.

  1. Company Drivers.

The concept itself is not thorough. Again, the idea of connecting shippers and drivers through the platform is supposed to benefit all parties, and I think it works well for shippers, but let's look at it from the driver's perspective. First of all, it creates a conflict of interest for company drivers, those who operate company-owned trucks. Carriers are not going to allow their drivers to make decisions about the loads they want to haul. It is difficult for drivers to forecast the market given fuel fluctuations, mileage rates, toll roads, and other factors that can affect net profits.

  1. Owner Operators.

Then, we have owner-operators, and I think Convoy's main focus was on them.  In fact, they could have been successful and could have changed the whole industry. As I mentioned in my previous article “Contracted Market vs. Spot Market - Striking a Balance”, the spot market is becoming more and more owner-operator driven. The old generation of truck drivers is retiring, and the new, young stream of truckers with an entrepreneurial mindset are becoming owner-operators. It is a brilliant idea with one very important aspect to consider: in order for drivers to book loads through the app, owner-operators must have their own authority and an active MC number to comply with DOT regulations. This is where the pain comes in: the majority of owner-operators in the market do not have their own authority. Instead, they choose to use and pay for dispatch services. We have another party in this arrangement, the middleman, as a dispatcher using Convoy's platform to book loads. Unlike Uber drivers who have replaced taxi drivers, the truckers will only be using the app for tracking, uploading BOLs, etc., and not as a direct source for their business and loads.  Owner-operators who have their own authority and can use the applications are lucky and have an advantage. I don't have the exact data, but I assume it's less than 5% of all owner-operators in the spot market. I think this is one of the main reasons why Convoy did not succeed, but not the only one

  1. Lack of Lines.

Furthermore, not having enough available loads is another downside. In certain areas, such as Nashville, TN, it is necessary to list a few options for drivers to choose from, depending on where they want to go next and/or make the most profit. Traditional load boards have hundreds of destinations to choose from, with a variety of products, weights, and temperatures,  while Convoy has fewer options to offer its drivers. This is very important to the driver and owner-operator. They want to make money and flexibility is also very important.

  1. Understanding the Approach.

Convoy is more of a technology innovator than a trucking company. Accordingly, its teams are located in Seattle, San Francisco, and New York, with high salaries, of course. This is a huge operational cost compared to regular freight brokerage companies based in the Midwest, where salaries are much lower and IT is much more expensive.

  1. Human Touch.

The transportation industry is very time-sensitive, especially the spot market. Various incidents can occur on the road and human factors must be taken into account. The Convoy app is not designed to account for equipment breakdowns, traffic, and weather conditions, logbook timeouts, etc. When it comes to loads that require special handling, such as specific pick-up and drop-off times, it is important to have reliable drivers who are able to communicate and make necessary adjustments.  Yes, the support team is always available, but it would take hours to resolve a problem. As I said, time is of the essence

  1. Not the right time.

The last point I want to make is that the industry as a whole is not quite ready for this innovation. Like most of us, we are not ready to switch to electric trucks in the near future, and that is a whole other topic. When I say industry, I mean all the major players involved, including shippers, receivers, brokers, and carriers, as well as the drivers. Can you imagine that most of them are still using paper BOLs, not digital?! There is no single system being used for the paperwork flow and on top of that, some of the customers still require an original BOL in order to process the invoices. This is just a simple example to show you that we are not there yet.

These are the factors holding back digital brokerage and contributing to Convoy's current position. However, with other players in the market, we'll see how the industry evolves and shifts toward digital brokerage.

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