Stability could be fleets’ best tool for weathering economic storms ahead

SAINT-BRUNO-DE-MONTARVILLE, Quebec—Fleets aren't the only part of the trucking industry bracing for a recession. The technology suppliers that help carriers run also are readying themselves for an economic downturn going into 2023. While the economic outlook is unstable, fleets and vendors are seeking stability.

"The storm is here. Trucking will suffer," Jacques DeLarochellière, Isaac Instruments CEO and co-founder, said of the economy. "But some technology companies will suffer even more. Unfortunately, it's going to be fatal in too many cases. Just look at the massive layoffs we've seen over the last six months."

Interest rates have jumped from 0.25% to 3.75% this year as inflation has soared at rates not seen in generations, DeLarochellière noted during his Nov. 16 keynote address to open the English-speaking portion of Isaac's user conference held at its headquarters here in this snowy Montreal suburb.

"I just don't see how we avoid a recession," Bob Costello, American Trucking Associations' chief economist, said during an economic panel that followed DeLarochellière's talk. "It should be relatively short. It should be relatively mild."

Despite the Federal Reserve's attempt to create a "soft landing" for the U.S. economy, Costello said that couldn't be orchestrated perfectly. "At this point, that's like trying to land a 747 on an aircraft carrier," he said. "You just can't do it."

But he noted that the overall U.S. recession would affect trucking differently because of the strained capacity fleets grappled with during the COVID-19 pandemic.

'Trucking mindset' vs. venture risks

Neil Abt of Isaac (left) moderates a panel on trucking industry issues and economics with ATA Chief Economist Bob Costello (center) and Rebecca Brewster, president and COO of the American Transportation Research Institute.

DeLarochellière said his trucking technology company, which provides driver-centric fleet management solutions including ELDs, telematics, driver coaching, and compliance, is well-positioned for the downturn.

"When the wind picks up, you want to be in the brick house—like the wisest of the three little pigs," DeLarochellière added. And because his company was "built slowly, brick by brick," it is prepared to weather a stormy economy.

Lou Giardelli, director of information technology at Pennsylvania-based Veltri, said this drew his fleet to partner with the Canadian company that has made a big push into the U.S. market over the past 18 months.

He noted that many legacy trucking technology companies have had several different parent companies through the years. Isaac's stability—that its co-founder was still running the company—drew Veltri and its fleet of 150 trucks to the Canadian company.

"We wanted to make sure the company had been around long enough," Giardelli told FleetOwner. "We were one of the first U.S. implementations for these guys and that was a little bit of a concern for us. But I knew enough people who had worked with Isaac that this was a good group with smart guys."

Most technology companies are built off venture capital funding by investors willing to take "chance, risk, or danger" on turning that funding into profits, DeLarochellière said. "That's not really a trucking mindset, is it?"

While startup phases might drag on, companies are forced to reach out to venture capitalists for more funding rounds. "Venture capitalists don't back tech companies, they bet on tech companies," DeLarochellière said. "Their hope is that one will be a unicorn to pay off other losses and make them money."

Finding VC funding is getting more challenging too. The Isaac CEO said venture investments dropped by 60% year-over-year as investment value fell 79% over the past 12 months.

"Until a startup reaches maturity, it depends on the next round," DeLarochellière argued. "The technology company built on this model is at the mercy of the confidence in the market—the cash that there is out there. Venture capital is the fuel of the startup. And the startup must accelerate and thus burn that capital quickly. In times of instability—like the ones we are living in right now, venture capital is hard to find. Very hard. The risk of bankruptcy or drastic cuts in service and innovation are increasing significantly."

Does your fleet have a Plan B?

Guy Broderick, safety and training supervisor at Kriska Transportation Group.

Guy Broderick, safety and training supervisor at Ontario-based Kriska Transportation Group, noted how much the industry has changed in recent years and is continuing to evolve. He sees Isaac adapting as well.

"We all know trucks have changed," he told FleetOwner. "They're not the same as they were even five years ago with new collision mitigation systems. It's also not the same kind of industry. So when you're looking at technology, you have to be thinking into the future. Where is this company going to be in five years?"

DeLarochellière said it's crucial now for fleets to have a "Plan B" going into an economic downturn. "You all have a number of technology companies you rely on," he told the crowd of Canadian and U.S. fleet executives who all use Isaac's trucking technology solutions. "It's time to assess your risk and your vulnerabilities. Start with the critical systems—the ones that could cripple your operations."

He said technology suppliers' financial health, business model, and sustainability are more important than ever. "We do that for all kinds of parameters of our business," he said. "You need your partners to be healthy through a crisis. Telematics is one of these mission-critical systems."

And DeLarochellière said his company—which was started 30 years ago in a shed in his parents' backyard—is set up to withstand economic downturns. "Isaac was built one brick at a time without any venture capital ever," he said. "So we never had the 'grow through all means' mentality. We were never an undertaking involving chance, risk, or danger of venture. So we were never in a cash-burn situation. The journey has been much longer because of that. But it was much less risky—less risky for us and, most importantly, less risky for you guys.

"So we will remain cautious and diligent during that economic crisis," he continued. "We have gone through the pandemic together. We'll do the same thing for this instability period."

Fleet concerns about economic downturns

Isaac Instruments headquarters in Saint-Bruno-De-Montarville, Quebec, outside Montreal.

Echoing sentiments he shared with U.S. trucking executives at ATA's Management Conference & Exhibition in San Diego last month, Costello said: "We've got a unique cycle going on in trucking—like we've never seen before."

The pandemic brought in a "boom time" for the industry as consumer spending rose for goods in the second half of 2020 into the start of 2022. "But unlike past cycles, when it was really good, what could this industry not do this time? Go out and buy a bunch of trucks. And that's why it's different."

While Costello anticipates fleets seeing softness in the market going into 2023, "it is not going to fall off a cliff. Because we did not add too much capacity during the good times. And that is something we've never seen before. We've never had a cycle like that before."

Veltri's Giardelli said his fleet is still facing supply chain problems as it looks into 2023.

"Are there parts? Can we get tractors? Are the prices still the same as what we contracted for six months ago? That's how it affects us," he said. "I think everyone is kind of facing those challenges from an economic perspective."

But Giardelli said that after hearing Costello's thoughts on the trucking economy, he felt better about the outlook. "I kind of got a little better sense of it," he said. "If there's going to be a recession or not, it's probably not going to be too long, hopefully. We'll see. But I think we're probably all in the same boat when it comes to purchasing. Perhaps it's just through volume, though. While we're buying 10 tractors, for someone else who is buying 200 or 300 tractors, it's probably a little different."

This article was originally published on FleetOwner.com.