Beyond the Hype: Why Companies like Convoy and Flexport Aren't True Logistics Industry Disruptors
In the realm of logistics and trucking, companies like Convoy and Flexport have garnered significant attention and investment, all under the banner of being industry disruptors. They promise to revolutionize the way goods are transported, managed, and coordinated while attracting investors who hope to profit from this alluring narrative. However, when we delve deeper and look beyond the flashy presentations and tech-savvy interfaces, it becomes evident that these companies might not be the disruptors they claim to be. Let’s explore why Convoy, Flexport, and others like them may not genuinely challenge the established order in the industry but instead operate within the current ecosystem, exacerbating the issues and causing more harm than progress.
A Superficial Revolution: Failing to Challenge the Status Quo
Convoy, Flexport, and others often tout their revolutionary approach to logistics and trucking, but do they genuinely challenge the entrenched norms of the industry? In reality, their business models still closely resemble the traditional broker-based system, where intermediaries connect shippers with carriers. The fundamental problem lies not in the system's structure but in how carriers and drivers are compensated and how much control they have. None of these so-called "disruptors" have effectively addressed these issues. While technology plays a significant role in their operations, the core concept remains largely unchanged. This raises the question: Is it a disruption or merely a technological facelift?
The answer is clear – if the people using the service do not witness substantial changes or face new challenges, then Convoy and Flexport haven't disrupted anything. They haven't fundamentally altered how goods are shipped, how they are paid for, or any aspect of the transportation system. At best, these companies have streamlined an already existing process, and in reality, one might question whether they even achieved that, given their numerous struggles. In truth, they seem to have applied some digital lipgloss to an existing pig of a process and called it a day.
The Lack of Diversity at the Top: Leadership is Monotonous (aka mediocre white dudes)
One vital aspect of a truly disruptive company is its commitment to diversity and inclusion, not only among its employees but also in its leadership team. Regrettably, when we scrutinize Convoy, Flexport, and similar companies, a lack of diversity at the top becomes apparent. The absence of diverse perspectives can hinder innovative thinking and prevent them from addressing the unique challenges faced by all participants in the supply chain.
While these companies often tout diversity among their workforce, it is evident that this mainly applies to frontline workers and not leadership positions. With 35%-45% of truck drivers being non-white, having a predominantly white leadership team for a trucking marketplace appears questionable. Without diversity at the top, how can there be a meaningful understanding of the challenges that diverse drivers truly need to be addressed? Additionally, the lack of women in leadership positions at these companies contradicts the proven fact that companies with women in leadership positions tend to outperform their competitors that do not have diverse leadership.
Missing the Real-World Experience: Lack of "On the Ground" Understanding
To truly disrupt an industry, a profound understanding of its intricacies is essential. Convoy, Flexport, and their founders come from technology backgrounds, lacking hands-on experience in trucking and logistics. While they can bring fresh perspectives and technological innovations, they might miss the insights necessary to tackle the complex challenges faced by the industry. Many of them saw an opportunity in an industry that lacked technological advancements, which was not incorrect and decided to enter the market. While the industry indeed needs to transition away from outdated practices, these founders entered without understanding the people they were working with and the industry's unique challenges. Their primary motivation seemed to be financial gain rather than a genuine commitment to improving the industry. Without any experience in the industry, how can they be capable of identifying, let alone solving, real-world problems that affect truck drivers and shippers?
It IS all About the Money: Misunderstanding or Exploiting Critical Payment Term Issues
One of the most pressing concerns within the logistics and trucking industry is the often burdensome and delayed payment terms that trucking companies, carriers, and drivers face. These payment terms can significantly impact the financial stability of small and independent trucking businesses. Unfortunately, companies like Convoy and Flexport either completely misunderstood this issue or, in some cases, exploited it.
Flexport exploits this issue by charging fees (unclear on their website) for factoring invoices. They pay carriers up to 90% of an invoice (which seems like a low amount based on other factoring companies) and then collect the full invoice amount later. Flexport does do non-recourse factoring, meaning if they cannot collect, they do not come back to the carrier, which is sometimes not standard with other companies. While this is better than typical, it still exploits an issue in the industry rather than addressing it head-on.
Convoy, on the other hand, attempted to address this problem, but in a misguided manner. Instead of reforming the industry's payment culture, they used investor money to subsidize their quick-pay program, which provided free payment to carriers within 2 days. While this initiative appears noble, it was naive and frankly stupid. Many shippers use payment terms to bolster their own finances, which is a complex issue in itself, and because of this, Convoy likely faced challenges in collecting the invoices later on. While their intention was to benefit carriers, their lack of understanding of the industry's core dynamics led to their downfall.
Addressing payment term issues is a fundamental aspect of any meaningful disruption in the logistics and trucking sector. These issues directly impact the livelihoods and financial stability of the individuals who keep the industry moving. True disruption should encompass not only technological advancements but also essential improvements in industry practices that benefit all stakeholders.
What does it all mean?
Companies like Convoy and Flexport have undoubtedly made waves in the logistics and trucking industry, attracting significant attention and investment. However, it's important to scrutinize their titles of being industry disruptors. They may streamline existing processes, but have they genuinely challenged the status quo? No.
To achieve genuine disruption and transformation in the logistics and trucking industry, it's essential to go beyond the surface and address critical issues. The industry deserves innovation that goes beyond tech enhancements and takes a holistic approach to solving its problems, all while fostering diversity, inclusion, and real-world understanding.
Ultimately, the future of logistics and trucking will depend on whether new companies in the sector can evolve into true disruptors or remain tech-driven intermediaries with limited transformative potential.
