Pandion Raised Over $100M In 3 Years And Still Didn't Make It

Good Morning,

First, as always, thank you for joining.

The most popular article I wrote in 2024 was about Ontrac. The headline for that edition was “2025 Will Be The Last Year Of Operations For Some Last Mile Carriers“. Well 2025 is barely out of the gate and we have the first casualty of race to the bottom last mile service offers.

Pandion.

Told you so.

I’m going to give you an overview of Pandion, what they did (and didn’t do), and help shine a light on how a company that reportedly was delivering 100,000 packages a day went bankrupt and out of business without enough money left in the bank to pay severance.

Here’s what this issue brings:

• Pandion was supposed to be the future of eCommerce delivery (at least, according to them). It came crashing down. Hard. Here’s everything I know and what I see as the flaws (and fallacies) of the model.
  

Reach 0% Of U.S. Homes — Without Residential Or Peak Surcharges

Pandion was founded in 2020 with the aim of revolutionizing the eCommerce delivery.

The goal was a parcel network specifically designed for residential delivery, leveraging technology and a diversified carrier network to provide faster delivery times and reliable customer experiences.

They wanted to be the efficient delivery solution for eCommerce businesses of all sizes.

As we all know now, it unfortunately didn’t work out.

From the outside, Pandion’s executive team was stacked.

Led by Scott Ruffin, the company had no problem connecting with d2c brands as well as large national retailers.

This was in part due to Scott’s background.

See, before founding Pandion, Scott was already ‘logistics famous’.

He spearheaded the development of Amazon Air, (an internal air cargo network), that completely changed the company's delivery capabilities and set standards across the board.

He then spent time at Walmart as the Vice President and head of eCommerce transportation.

Needless to say. He understood how to move boxes AND he was / is very well connected.

Pandion’s rapid rise can be attributed to Scott’s history and COVID.

The company emerged from stealth mode and officially launched its service on February 4, 2021.

Pandion announced the close of a $4.9 million seed funding round, marking its public debut and the beginning of operations.

Pandion’s Service & Network

The company liked to describe itself as a “end-to-end” shipping network.

They positioned themselves as a one stop shop for retailers and eCommerce brands.

They owned the sourcing, contracting, on-boarding, and management of last mile carriers for their clients.

Pandion also arranged and managed the pickups from customer fulfillment centers and the middle mile movement through their network of partners.

Injected into the middle of all of this were their 5 sortation centers where they would aggregate volume from all of their clients.

They didn't however have their own fleet of vehicles or drivers.

Here’s a look at the Pandion sortation center network in the US:

Contrasted against the current US population density:

And again, to the most used truck lanes:

As you can see, the facilities are in all of the right places.

Anchored in key markets, it gave Pandion the ability to easily move packages from coast to coast.

Pricing

Compared to companies like FedEx and USPS, Pandion “prided” itself on transparent pricing.

Their base rate card was published on their website for anyone to access.

And this would be a typical breakdown of their zones for a California based shipper:

• Zone 1: Destinations within 50 miles

• Zone 2: Destinations within 51-150 mile radius

• Zone 3: Destinations within 151-300 mile radius

• Zone 4: Destinations within 301-600 mile radius

• Zone 5: Destinations within 601-1000 mile radius

• Zone 6: Destinations within 1001-1400 mile radius

• Zone 7: Destinations within 1401-1800 mile radius

• Zone 8: Destinations within 1801 mile radius or farther

In addition to those base fees (which would be discounted based on your volume), they also had enough accessorial fees — even if they didn’t have “residential or peak” surcharges

A map of their the surcharged zip codes:

Despite what the company presented, there really isn’t anything special or different in their pricing model than most major carriers.

If anything, Pandion had LESS flexibility when it came to a lot of this pricing because of the fact that they needed to be able to cover any charge or condition that the actual fulfillment / delivery provider would charge to execute the activity.

Pandion’s Last Mile Providers

There’s been a lot of talk once the announcement was made about the final mile structure.

In particular, how reliant was Pandion on the USPS.

Some people have shared that 70-80% of the volume Pandion had ended up being delivered by the USPS after the DDU injection.

Others say that in their discussions with Pandion, USPS volume was presented as a small percentage of their business.

Based on the (limited) interactions I had with Pandion in a delivery context, it was the former. They were HEAVILY leveraged into USPS.

Their strategy was then to find smaller regional carriers in markets where they had strong density, and would negotiate the lowest possible delivery charge to increase profitability.

They would supply last mile providers with a “Final Mile Provider” contract and work order.

These would all be carriers that operated in urban centers or close to Pandion sortation facilities (you see the general approach when you look at the map of the zip surcharges).

Pandion would also look to stress these networks with much later injection times. It was a feature that they sold on and allowed them to have more of an opportunity to build up density for each drop (they were also done after USPS injections)

USPS Changes

The changes the USPS put in place with respect to discounts and DDU injections left Pandion scrambling.

They were already having a hard time keeping volume commitments to other carriers in their network (and would actively force volume from one carrier to another) to try spread their volume in a way that didn’t have everyone screaming at them.

Basically they had too many non-USPS options for the volume that would qualify, and too much for the USPS to be able to deal with all of the changes.

See, DDU injection offered the highest discounted rate structure that parcel consolidators could access. Discounts for DDU injection could exceed 30% compared to injecting at a Sectional Center Facility (SCF) for 1-5 pound packages (the bulk of d2c eCommerce shipments).

For the higher weight categories, the difference between DDU and upstream injection discounts was even more dramatic.

These deep discounts allowed consolidators to offer very competitive rates to their shipping customers while still maintaining healthy margins.

When these went away, it was a huge hit on profitability as well as making the Pandion service more generic and undifferentiated.

Since they had been selling on discount when approaching major retailers, they knew that raising rates would immediately cause them to lose the business.

Volume Trouble

Contracts are funny things.

Organizations put a lot of time and effort into structuring the right types of deals.

When it comes to parcel, there’s always the tension between rates and volume.

Shippers want the lowest rates possible, and service providers want the volume.

In this way, Pandion is just like everyone else.

But back in July, Pandion made a move that almost no one makes.

Not because they were wrong in their assertion, but because going after a customer in court is (usually) bad for business — and specific performance is always messy.

Pandion filed a $34 million lawsuit against Kohl's in July 2024.

According to the lawsuit, Kohl's had agreed to use Pandion's delivery services and provide a certain volume of packages, but failed to meet the guaranteed minimums.

Specifically, Kohl's fell more than five million packages short of its agreed-upon volume, amounting to over $34 million in damages claimed by Pandion.

Kohl’s was actually one of Pandion’s first major accounts.

And Pandion stated that a lot of their expansion strategy was to support the needs of retailers like Kohl’s.

When you want to sign the biggest national retailers, you don’t exactly get a lot of traction if you can’t handle the majority of their US volume.

Looking at Pandion’s last major funding round (which was less than a year ago…), 3 of the 4 top priorities were all about reach and performance in order to sustain and gain major retail accounts

1. Accelerate the growth of its residential parcel delivery network

2. Expand its geographic reach

3. Increase delivery speed

4. Build new technology offerings

They were hoping that if they could expand and become big enough (and before anyone else), they would be the defacto choice from the market when it came to a reliable alternative last mile provider.

The funny thing about the big retailers with all of the money and volume that everyone chases?

They are slow AF to make decisions and changes. They also do a lot to mitigate risks which means they aren’t very eager to give you all of their volume that quickly (if at all).

Putting It All Together (This Is the TLDR Part To Pay Attention To)

Pandion didn’t fail because of SLAs.

And they didn’t fail because they couldn’t manage the transactions in the network.

They failed because logistics is (for the most part) a fixed cost business.

Even with an expected $220M in revenue expected for 2024, it wasn’t enough to cover their warehouse and transportation costs.

Most providers get stuck in a really difficult chicken or the egg type situation.

To get more attention and volume, you need to be able to take meaningful levels of volume from your customers. That means assets, infrastructure or a ton of partnerships.

But, to have the money to pay the bills for those assets, infrastructure or partnerships, you need to be generating solid (and profitable) revenue.

Pretty much all of the VC backed COVID darlings have used massive investments to offset inefficient operations.

Pandion took a different approach to minimize costs compared to other alternative platforms.

While most of them try to manage the last mile activity and reduce costs via gigworkers, Pandion outsourced everything other than sortation.

But those 5 big buildings and all of the linehaul activity killed them.

Because they still had to pay for all of the deliveries, all of the pickups, and all of the injections — regardless of how full the trucks and buildings were.

Pandion didn’t fail because their tech wasn’t good enough.

They failed because the tech didn’t make enough of a difference to core operations when it comes to d2c logistics.

Just because the concepts of logistics are simple to understand, that doesn’t mean running a high performing operation is easy.

FOR RETAILERS & eCOMMERCE BRANDS

Here are things that you should always be on the lookout for when gauging the health of an alternative carrier:

• Geographic Coverage And Expansion Plans
  
  Know where the carrier is operating today and where they are planning on going and why.
  
  While your customers are all over the US, let’s be real. Some markets are WAY more important than others when it comes to population density and TAM. If the provider is already in those markets and is focused on expanding to smaller ones, their overall profitability will only decrease over time.
  
  It’s not bad that they want to have more coverage, but it’s important to understand how they are going to do it. It forces them to be better operators or hand off to someone who is.
  

• Rates
  
  When I was in your shoes as a shipper, we all want the lowest rates. But any carrier can realistically only go so slow before they start to bleed. If you are getting an absurd discount, that means that someone else will have to make up the difference. Ask yourself how likely you feel that is.
  

• Speed
  
  Delivery speed costs more. Moving things quickly means that there are planned assets / moves already in place and that these happen rain or shine (or regardless of the volume on the truck). A promise is a promise after all.
  
  The smaller the alternative provider and the bigger the promise they make means that they have a lot of expensive commitments already in place.
  

• Technology
  
  If you alternative carrier spends more time talking to you about tech versus operations…
  
  RUN
  
  Technology will never change the impact of a half full truck zone skipping your packages. Seeing assets or partners on a map doesn’t mean anything if those delivery routes are wildly under utilized.
  

• Capacity Management
  
  Is the alternative carrier you are working with able to talk to you about their overall network capacity? If not, this is a strong sign that they aren’t focused on the right things.

FOR SERVICE PROVIDERS

• A build it and they will come strategy is extremely expensive. The odds are that you’ll fail long before you ever are able to close enough deals to pay for all of the assets and infrastructure you have.
  
  Build strategically and in ways that give you as much opportunity to hit your “target to cover” (I’ve explained this in other newsletter articles) as quickly as possible
  

• Don’t over-leverage partnerships or technology. The biggest challenge you will have will be making sure that enough daily volume is going through the system to keep everyone whole.
  
  Successful logistics boils down to one thing. Maximizing the amount of revenue generating transactions for every hour worked.
  

• EVERY type of model you can think about has limitations and a base cost to operate. From big delivery trucks, to EVs to eBikes — it’s all the same core formula.
  
  Know exactly what the inputs and outputs are to operate profitably for each segment
  

• When you sell on discount, that’s the value proposition your customers bought into. Don’t expect to be able to raise rates later once your foot is in the door. It never happens.
  

• Gigwork models will NEVER allow you to have enough control over the capacity or the quality of experience. Even the BEST drivers on your platform are on EVERYONE ELSE’S platform. This leaves your delivery experience out of your control. Never good.

That’s it for this week. Thanks for being here.