Lessons From a Tough Year in Logistics

Few years have been as tumultuous for the US logistics industry as 2023 and the business closings, bankruptcy filings, and layoffs that have plagued transportation providers for the last 12 months. 

Let’s take Convoy’s October closing for example. Like many logistics players, it invested heavily in growth to keep up with the sudden spike in shipping demand in 2020 and 2021. As consumers spent their stimulus checks, shippers ran out of capacity and turned to companies like Convoy to manage their higher volumes. Freight prices were high and freight brokerages, which act as intermediaries between shippers and carriers, were able to carve out healthy margins. 

All that changed in the spring and summer of 2022, when demand for consumer goods dropped sharply. As freight markets moderated, brokers saw their volumes plummet and their margins shrink when rates dropped dramatically. Skyrocketing inflation, rising energy prices and higher interest rates only made the situation more dire. “We were running up the down escalator…and it kept speeding up,” said Convoy CEO Dan Lewis in announcing the business closure.  

Convoy was not alone in facing hard times. Virtually all US freight brokerages have struggled, as evidenced by a series of layoffs across the industry in both 2022 and 2023. 

So, what are the key takeaways from the Convoy shutdown, as well as the continued challenges faced by surviving brokerages?  There are two critical lessons for shippers as market volatility continues. 

Lesson One: Know the Financial Health of Your Trading Partners 

Much of the media coverage of the Convoy shutdown focused on the fate of its employees, but less attention was paid to the situation of Convoy’s many customers who had their shipping activities abruptly halted.  

These shippers had to scramble to rebook their shipments, undoubtedly at much higher rates, to keep their all-important end customer promises. The shutdown didn’t just affect one business; it negatively impacted every one of Convoy’s trading partners, too. 

In today’s environment of high consumer expectations and intense competition, shippers simply can’t afford to put their customer promises at risk. It’s imperative for every shipper to take a close look at the financial health of their trading partners and ask themselves, “How reliable is this business? Is it built to weather the storms of market volatility? Are its services diversified enough to support long-term resilience to changing conditions?” 

Lesson Two: Choose a Partner That’s Built for Long-Term Resilience  

Digital logistics startups grew at a rapid rate over the last several years in the low interest rate environment that existed at the time. The focus of these businesses was on growing volume without a core focus on immediate profitability. When interest rates rose, and the cost of debt became expensive, a strategic approach to grow market share at a loss became problematic.  

The downturn of the freight market exacerbated this and exposed the painful realities of a model that needed immense scale to reach profitability. Making matters even more difficult was a dependance upon expensive technology that was digital first, second, and last, rather than tools that allowed its employees to both increase productivity and have more meaningful engagements with the carrier community. 

In today’s environment of continued volatility, it makes better sense for shippers to choose a logistics partner with a more comprehensive and diversified service offering. Supply chain resiliency increases exponentially if the logistics provider can leverage a combination of privately owned assets and an extended network that includes hundreds of carriers of all types and sizes. The ideal partner should be equally capable of dealing with a one-time spot load, managing a seasonal peak or supporting a long-term freight services engagement. 

4PL: An Increasingly Reliable, Cost-Effective Model  

Many shippers today are turning to the fourth-party logistics (4PL) model to deliver on their customer promises, both reliably and cost-effectively, in these turbulent times.  

Gartner defines a 4PL as “a supply chain services provider that assumes managerial responsibility for the design, build, run, measurement and orchestration of an end-to-end logistics network on behalf of their customer for a fee. A 4PL manages and coordinates the physical execution of logistics operations via internal and/or external parties while delivering end-to-end visibility, management control and optimization via an integrated technology platform.” 

Over more than a decade of success in serving customers as a 4PL, Redwood has observed that the fourth-party logistics model offers many advantages. While logistics networks are typically fragmented and challenging to manage, especially in changing conditions, the 4PL model connects, facilitates, centralizes and optimizes end-to-end supply chain operations.  

Instead of manually coordinating disparate systems, shipping partners and processes — which is not only inefficient, but also costly — a 4PL provider leverages the most advanced technology to enable real-time digital connectivity, visibility, automation and decision support. As conditions inevitably change, a 4PL uses artificial intelligence (AI), machine learning (ML), analytics, data science and other advanced capabilities to sense the change, weigh trade-offs, define an optimal response and execute it — often in mere seconds.  

Shippers benefit from a logistics capability that is continuously and invisibly optimized for both service and cost, no matter how the market evolves. Whether it means pivoting to a new transportation mode or route, shifting to a privately owned asset, or changing carriers, 4PLs like Redwood have nearly endless options at their disposal to ensure critical customer promises are kept. Partnering with a 4PL generally leads to improved customer service, lower logistics costs, greater supply chain resiliency, and an enhanced ability to focus on your core business competencies such as product innovation.  

Just how strong are Redwood’s capabilities? We’re proud to announce that Redwood was recently named a Representative Vendor in the 2023 Gartner Market Guide for 4PL. Redwood has implemented 4PL solutions for over 10 years, meeting increasing customer requirements in an ever-evolving logistics industry. Contact the Redwood team today to discuss how the 4PL model can start generating immediate benefits for your business.