Letter from the Editor

By Eric Johnson

This was not a market ready to be wiped away .

In an eight-month period , the “ digital ” freight brokerage model has taken multiple body flows that demonstrated a heavier exposure to market dynamics than the incumbents that digital brokers were trying to unseat .

In early June , Transfix said it was selling its brokerage business to third-party logistics provider NFI while keeping its technology unit to sell as a standalone software product . That came after the October demise of fellow digital broker Convoy .

Those two companies emerged among a group of digital brokers in the mid-2010s , a list that also included Loadsmart and Uber Freight , and drayage brokers Cargomatic and NEXT Trucking .

Convoy ’ s brokerage business is now gone . Its technology was acquired in November by Flexport , which has turned it into a standalone marketplace app for brokers and carriers . Uber Freight acquired Transplace in 2021 and has used the acquisition to try to gain a sustainable foothold in the market .

NEXT Trucking , which raised $ 124.1 million , was acquired by fellow drayage broker CDL 1000 in February after post-pandemic financial struggles . Forager , a cross-border-focused trucking broker , was purchased by broker Arrive Logistics in February 2022 .

Of the original digital brokerage cohort , only Cargomatic , Loadsmart and Nuvocargo — another cross-border broker backed by venture capital investors — have been untouched by M & A .

The uneven success of the digital brokerage model suggests that the foundations of the market were harder to disrupt than venture investors first envisioned a decade ago , and maybe even harder than some of the founders of the digital brokerages had foreseen .

First , the emergence of digital brokers came as brokerages , in general , grew after the deregulation of the trucking industry in the 1980s , so there was increasing competition in an already fragmented market . This was not a market ready to be wiped away .

Secondly , the capital needed to build a technological moat in a price-sensitive market was huge . Look no further than Convoy , which many believed had indeed built differentiated technology . But the cost to build that technology , spent initially on subsidizing rates and later on an army of developers , was difficult to sustain in a persistent down market , such as that which existed from mid-2022 through last fall .

But digital brokerage was always a bet on the unknown . The venture industry that fueled the rise of the digital broker is built around the mathematics of asymmetrical gambles .

Seasoned bettors at the racetrack don ’ t fall in love with a single horse . Likewise , a fund may invest in 20 companies that it believes will be successful . But history shows that only one or two , if any , of those companies will “ return the whole fund ,” as VCs put it , while the others are shuttered or sold for spare parts .

Later-stage funds — the type that invested hundreds of millions into Convoy — have a similar diversification strategy ; digital brokerage may have been one bet among several within the logistics industry , and logistics itself would be one bet among several industries .

And while critics have long claimed digital brokerage was indistinguishable from brokerage in general , venture investors made a different bet . They theorized that brokers borne in a browser-based environment could disrupt the market by reducing the cost to acquire and serve customers . But those two market forces — a relentlessly competitive and fragmented market and a cyclical industry that places a premium on cost containment during down cycles — don ’ t play nicely with the economics of venture-backed businesses .

Transfix ’ s struggles are a perfect microcosm . The company tried to go public in late 2021 through a special purpose acquisition company , a move that got derailed by a swift downturn in public markets . It then got a $ 40 million lifeline from investors in October — the same day Convoy shut down — but that infusion came right into the teeth of the domestic freight downturn .

The brokerage business lasted only eight months more before its sale to NFI .

The fire may not be completely doused , though . There is a sense that names such as Convoy and Transfix died so others could live . Bill Driegert , head of trucking at Flexport and a former Uber Freight executive , told the Journal of Commerce that the money Convoy spent on digitalizing was meaningful .

Transfix ’ s founders similarly believe the technology division has legs as a standalone business .

What ’ s more , it ’ s undeniable that the emergence of the digital brokerage model compelled other brokers to update and enhance their internal and customer-facing technology to ensure they were operating effectively and efficiently .

But the harsh reality of brokerage — and the truckload market in general — is that market forces come for everybody , and in the end , those forces usually win .

email : eric . johnson @ spglobal . com

4 Journal of Commerce | July 1 , 2024 www . joc . com