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Freight sector struggle creates window of opportunity in the secondary market

Trading

Data

Flexport

Convoy

Shipping

November 16, 2023

The freight sector, once booming, is now facing an uphill battle. 

Freight startups such as Convoy and Flexport have risen to prominence over the past decade, driven by a shared mission to transform the freight industry and elevate its operational efficiency. While these companies made significant inroads into the shipping markets, the entire industry is now grappling with its own set of obstacles, including dwindling shipping demand and a sharp decline in freight rates as in-person shopping returns and global supply chains return to normalcy. The impact of these obstacles are also reverberating throughout the secondary market. 

Convoy: did the secondary market anticipate the shipping firm’s demise?

Seattle freight startup Convoy, once hailed as the “Uber for trucking”, was worth nearly $4 billion at its peak valuation. Abrupt news of the company’s winding down of business operations and the sale of its technology assets to Flexport came as a shock to a freight sector with fresh memories of the highs of 2021. Hiive has seen consistent sell-side interest from both employee and institutional Convoy shareholders at more than 50% below the company’s last-round valuation. Despite the larger-than-average discount, buyer interest in Convoy was scarce and no trades were executed in 12 months leading up to the company’s demise.  

In hindsight, it was clear that the secondary market, often populated by buyers with inside information on company performance, or those who are industrious enough to source business intelligence on private issuers, had been sending smoke signals for as much as a year before Convoy’s demise. 

Flexport: a steady ship in choppy seas

By comparison, Flexport, the 10-year-old logistics startup based out of San Francisco, has consistently been a pack leader amongst the tech-driven disruptors of the freight industry. The company’s stock has also been one of the most actively traded names on Hiive, driven by investor demand and the management’s permissive attitude towards secondary trading.

Flexport Pricing Chart on Hiive (CAA Nov 1, 2023)

Based on secondary market activity on Hiive, it is clear that Flexport has not been spared by the struggles associated with the freight sector. On the back of falling freight prices post-COVID, and recent revelations of a 70% drop in revenue in the first half of 2023, stakes in the company have been on a downtrend over the past 12 months. Flexport shares have most recently changed hands on the Hiive at $7/share (a 51% discount to the company's January 2022 Series E), with listings as low as $5.50/share (a discount of more than 60%) and bids now as low as $3.50 to 4.00 per share. 

This steeper discounting relative to the market average (transactions on Hiive took place at an average discount of 46.1% in October) illustrates the freight industry’s disproportionate struggles relative to other sectors this year. 

Only time will tell if returned co-founder Ryan Petersen can lead Flexport through this turbulent patch. However, what is clear at the moment is that most buyers are in a holding pattern awaiting positive signals from Peterson’s influence and a rebound in sector performance overall.

In the meantime, sellers of common stock may need to settle for very steep discounts to the last primary valuation, in order to meet bargain hunting buyers.  

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