The Ikea corporation has filed an interpleader lawsuit seeking guidance on who should receive payment for freight services amidst the fallout from the collapse of digital freight broker Convoy in October 2023. This lawsuit has exposed contract rates, revealing details of the financial agreements between Ikea and Convoy for specific shipping lanes.
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The lawsuit names Convoy, dozens of carriers, and other parties like venture capital lender Hercules Capital as defendants – essentially asking the court to decide who has the rightful claim to Ikea’s payment.
The case stems from freight shipments arranged between Ikea and Convoy in October 2023, just prior to Convoy suddenly ceasing operations on October 19th. Convoy contracted with carriers to transport Ikea goods, but never paid them. Meanwhile, Convoy also defaulted on loans from Hercules Capital, who took control of Convoy’s accounts receivable.
Who Gets Paid?
Ikea was prepared to pay Convoy, but Convoy’s contract stipulated they could only receive payment after fully compensating their subcontractors. With carriers still unpaid, Ikea has refused payment to Convoy and filed suit amidst competing demands from carriers and Hercules Capital.
Flexport
The lawsuit complicates matters further by noting that Convoy recently sold assets, including its digital platform, to rival freight forwarder Flexport. Despite a presumed capital infusion, Flexport has also not addressed outstanding payments to carriers. However, Ikea argues that since carriers were barred from invoicing them under Convoy’s contract, neither Convoy nor Flexport are necessarily obligated to pay carriers before receiving payment themselves.
With competing perspectives on who holds responsibility, Ikea deposited the $519,254 in disputed payments with the court and seeks guidance on distribution. But carriers impacted continue to demand answers and compensation. The situation illuminates the financial risks smaller transportation providers face when working with digital brokers relying on venture capital, as well as the messy aftermath when those structures collapse.
Convoy Platform Relaunch
The relaunch announcement from Flexport’s CEO Ryan Petersen highlighted nearly 200 loads dispatched on the platform but evaded questions concerning the numerous carriers left unpaid during Convoy’s previous operations.
Convoy’s founder, now at Flexport, celebrates the technology’s return, yet concerns persist among carriers regarding outstanding payments.
Convoy Hasn’t Filed Bankruptcy.. Yet
Despite Convoy’s failure to pay some carriers and its own workers, the company remains operational and recently sold its technology assets to Flexport. This figure pales in comparison to Convoy’s previous valuation but could potentially address outstanding carrier payments. However, questions linger regarding Convoy’s failure to fulfill financial obligations despite capital infusion and the sale of assets.
Ikea’s Contract Rates
A recent analysis of a contract between Ikea and digital freight broker Convoy sheds light on carrier pay rates. The agreement offered rates that consistently surpassed average spot market prices for the same lanes in October 2023.
Additionally, the analysis suggests that brokers like Convoy may typically retain around 15% of the spot market rate. Interestingly, some lanes in the contract offered nearly 80% more than the carrier lane average, potentially indicating significant profit margins for the broker.
These findings, while based on a single contract and assumptions, offer intriguing possibilities. They suggest that even in October 2023, securing high carrier rates, sometimes exceeding $4/mile, remained achievable through contract agreements.
