The so-called Uber for Trucking segment is on the cusp of its first high-profile casualty.
Cargomatic Inc., a privately held concern based in Venice, Calif., has less than 60 days left of operating capital, according to people familiar with the situation. In addition, its interim CFO, Seth Klein, resigned after less than a year at the job, according to one of the people.
The company has been plagued by weak demand for its core product, which is a digital platform connecting shippers directly with local truckers through a driver's mobile app. The product, aimed at streamlining the load-tendering process by removing any third-party involvement, has been targeted at local delivery markets, in aggregate a $77 billion a year nationwide business that in most markets has long been considered inefficient and ripe for a productive use of IT services.
Cargomatic, which holds a brokerage license, has resorted to traditional brokerage services in order to maintain a sustainable revenue stream. However, it has faced stiff competition from the crowded brokerage segment, and has struggled, like many others, with sluggish freight demand. It has also alienated some brokers that had expected to be partners with Cargomatic rather than rivals, according to one of the sources. Cargomatic's model anticipated that brokers would account for about one-quarter of its business.
Cargomatic is also being pressured by the expectations of its primary investor, venture capital group Canaan Partners. Canaan had attached a premium valuation to Cargomatic in the belief that it was justified for a fast-growing IT firm with a model to aggregate and rationalize truck capacity in local delivery markets. However, Cargomatic's struggles in its core business, and its subsequent emphasis on traditional brokerage—which commands a lesser valuation—have been a disappointment to Canaan, according to one of the people.
Canaan, which did not respond to a request for comment, has stood by Cargomatic for the past five months, during which time Cargomatic laid off about half its workforce and Canaan forced the ouster of its co-founder, Jonathan Kessler, from the co-CEO position. Kessler is still employed by Cargomatic in another role and remains on its board of directors. In addition, Sean Whiteley, shown on Cargomatic's website as its COO, listed the company on the site LinkedIn as a "previous" employer, indicating that he is no longer with Cargomatic.
Brett Parker, Cargomatic's co-founder, did not return a request for comment on the latest developments. In an interview several months ago after the layoffs and Kessler's ouster, Parker said the company was holding its own despite the ups and downs typical of a startup operation. Parker also said that Cargomatic continues to work closely with brokers, and denied there was any friction with brokers due to a purportedly greater emphasis on traditional brokerage.
According to one of the people, Cargomatic was right in pursuing its model of applying digital efficiencies to a fragmented, inefficient, and underserved market like local trucking, defined as hauls of less than 150 to 200 miles. But the move into longer-haul brokerage, perhaps necessitated by weak demand for its core offering, put the company into a ditch, the person said.
Cargomatic, launched in June 2014, serves Los Angeles, San Francisco, and New York. It also has plans to expand in to Mexico.
The "Uber for Trucking" sobriquet came from the ride-hailing model popularized by Uber Technologies Inc. in the passenger-car segment. Venture capital money has flowed into the Uber for Trucking niche as investors try to exploit an opportunity to more efficiently align truck capacity with load demand by enabling direct communications between shippers and carriers. Cargomatic has received about $10 million in funding.
However, freight-delivery logistics can be a somewhat complex affair that requires the capabilities of more than digital freight matching, according to various people who've been in the business for years. Many shippers expect some level of value-added service from their partners, and an operating model that patterns itself after Uber might be inadequate, especially considering that, unlike a car passenger, freight isn't able to provide the driver with any guidance or direction.
Late last month, the logistics consultancy Armstrong and Associates Inc. issued a report saying that while digital freight matching has its place in the mosaic of moving daily freight—especially in a national market where 10 percent to 23 percent of truck miles run empty—it is no substitute for the depth of experience of providers that understand the business and can deploy human and technological resources to improve a customer's business or resolve a problem.
Several experts, including the people familiar with Cargomatic's situation, expect a meaningful shakeout in the space. One of them put it bluntly: "The market is giving feedback. It doesn't want or need 'Uber for Trucking.'"
Editor's note: An earlier version of this story incorrectly gave Cargomatic's location as Venice Beach, Fla. DC Velocity regrets the error.
Gartner, Inc.