In this final quarter of 2023, the freight market has entered an era of somber recalibration. The optimism that jumped in Q3 is now tempered by more introspection, as signs emerge that the market could remain subdued for a longer period. This new normal is less about the tumult of the past and more about steady adjustment to prolonged market softness.
The second half of 2023 has so far brought with it several major bankruptcies, leaving in their wake a new awareness among carriers and brokers of how fragile market equilibrium really is. As Q4 unfolds, much of freight’s executive class seems to be adopting a more defensive stance, suggesting collective acceptance of a “lower for longer” market scenario.
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This conservative outlook is evident in the latest Freight Sentiment Indexes. North American supply chains now face the task of navigating a market that continues to downshift and has little hope of changing until Q2 2024 at the earliest.
The Q4 2023 Freight Sentiment Indexes are represented on a scale between negative 100 and positive 100, where higher numbers suggest positive sentiment or growth and lower numbers suggest pessimism or contraction. Shippers, brokers and carriers all answer the same survey questions. The results offer aggregated insights from hundreds of respondents into the industry’s health and expectations for the future.
In the first reading measured one year ago in Q4 2022, shippers registered an index of 12.68, indicative of modest confidence. That sentiment declined steadily through subsequent quarters, reaching a low of 8.32 in Q3 2023, and now is seeing a slight uptick to 9.79 in Q4 2023.
Brokers and 3PLs began with a lower sentiment of 9.84 in Q4 2022, which dipped further in Q1 2023 to 6.97. Their sentiment saw a fluctuation, climbing to 9.39 in Q2 2023 and peaking at 12.55 in Q3 2023, indicating a resurgence of confidence, before descending again to 8.78 in Q4 2023.
Carriers started with the lowest sentiment at 4.87 in Q4 2022, showing a slight improvement to 5.97 in Q1 2023 before taking a notable dip into negative territory at -0.52 in Q2 2023. There was a significant recovery to 9.17 in Q3 2023, only to decline once more to 4.41 in Q4 2023.
The overall sentiment index captures the cumulative sentiment across all segments, beginning at 9.13 in Q4 2022 and showing a gradual decrease to 6.48 by Q2 2023. A rebound to 10.01 in Q3 2023 suggested a temporary boost in confidence, but it retreated to 7.66 in Q4 2023.
Note: Survey data was fielded in the first two weeks of October.
Carrier sentiment: A market in search for equilibrium
Current sentiment among North American freight carriers reflects a sector searching for stability in Q4 2023, with the Freight Sentiment Index softening to 4.41 from a comparatively buoyant 9.17 in the previous quarter. This dip encapsulates the ongoing struggles in an industry attempting to right-size against a backdrop of excess capacity and economic uncertainty.
Data from recent months illustrates the truckload market is still digesting the influx of new operating authorities and tractors during the COVID-19 boom time, both of which have grown at a faster rate than tender volumes since 2018. The disparity suggests carriers are wading through a capacity surplus, which has put a damper on the segment’s margins.
The economic turbulence that began in 2022 persists, with a demand curve that has not risen sharply enough to support the breadth of available capacity. This lag is mirrored in the subdued sentiment figures, indicating that while the horizon holds promise, the immediate path remains fraught.
The plight of logistics service providers is underscored by the shuttering in recent months of several large carriers and brokerages, including FreightTech darling Convoy.
Some analysts provide a cautiously optimistic timeline for this correction, suggesting a realignment of supply and demand should materialize within a year and a half if the economy and carrier consolidation trends continue as they have. This prognosis aligns with data showing a rise in the exit rate of trucking authorities since late 2022, a potential harbinger of a more balanced market on the horizon.
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While 2024 may bring the balance that carriers seek, near-term profitability remains negative, albeit less so than in Q1 or Q2. This hesitance in near-term outlook is balanced by a stronger confidence in long-term profitability, which, despite a decline from the previous quarter, remains in positive territory.
Employment indexes present a mixed view, with immediate workforce sentiment slightly negative, hinting at cautious staffing strategies. In contrast, the longer-term perspective is more stable.
Investment sentiment has cooled, with the index retreating to 2.17, suggesting a wait-and-see approach as carriers gauge the timing and strength of the market’s upswing.
These indexes collectively narrate the tale of a sector in the throes of recalibration. With an eye on future stability, carriers are wading through the near-term challenges. Their sentiment is tempered by experience and the anticipation of an industry on the cusp of change.
Broker sentiment: Navigating a narrowing path
Brokers and 3PLs are confronting a pronounced shift in sentiment as they close out Q4 2023, with overall freight sentiment having receded to 8.78 from a Q3 high of 12.55. This downturn is reflective of broader constriction in the freight market, where low rates and tightened capital environments squeeze margins, testing the resilience of the brokerage sector.
Despite this dip, the year-over-year sentiment comparison reveals a sector potentially more buffered against the storm than asset-based carriers (though Convoy’s shuttering throws that idea into question). The nimble nature of brokers may afford them some agility to pivot in response to the evolving market dynamics, albeit within a more challenging landscape. Similar to carriers, they’re likely to continue to struggle until the market swings in carriers’ favor.
The stunning closure of Convoy, a digital brokerage that was recently among the most promising and best-funded upstarts in logistics, epitomizes current sentiment in the brokerage community. Like carriers, brokers are wrestling with a service overcapacity that fails to align with demand.
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This sentiment is reinforced by the broader financial caution seen in the logistics space. A notable slowdown in mergers and acquisitions signals a collective pause among investors, wary of committing in a volatile market, thereby straining liquidity and expansion prospects for brokers and 3PLs.
Within this contraction lies a fork in the path for brokers: on one side, a landscape rife with challenges like diminishing freight volumes and intensified competition, and on the other, opportunities emerging from market consolidation. Here, robust entities could strategically absorb the customer and talent reservoirs of less solvent competitors, positioning themselves advantageously for the eventual market uptick.
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Navigating through Q4 2023, brokers and 3PLs must walk the tightrope of managing operational efficiencies while fostering innovation, all in an era in which fiscal prudence is paramount. The subdued sentiment thus captures a snapshot of a sector eyeing the potential for rebound but anchored firmly in the reality of today’s economic headwinds.
Shipper sentiment: Steady amid uncertainty
As Q4 2023 unfolds, shippers are feeling a marginal elevation in their overall freight sentiment, climbing to 9.79 from 8.32 q/q. But the numbers reveal a deeper narrative of caution.
Near-term profitability has risen to 9.8, signaling a tempered but positive response to current market conditions. This uptick over Q3 reflects some muted optimism as the industry navigates through excess capacity and elevated inventory levels, which continue to exert pressure on margins. Despite the immediate headwinds, the longer-term profitability outlook remains more positive, resting at 21.2, suggesting that shippers are banking on strategic adjustments and market corrections to bolster future earnings. This confidence could stem from an anticipation of demand stabilization and a more balanced supply chain landscape ahead.
The workforce sentiments tell a more complex story. The near-term workforce sentiment drops to a mere 0.53, suggesting head counts will remain unchanged for now. Conversely, the slight improvement in longer-term workforce sentiment to 5.97 indicates that shippers feel slightly more positive about future labor conditions.
On the business investment front, there’s a notable retreat to 11.47, showing a strategic shift toward fiscal prudence. Investments are being more carefully weighed, with an inclination toward those that can deliver immediate value in streamlining operations or reducing overhead. This conservative approach to capital expenditure reflects a broader industry trend of risk mitigation.
Shippers then are portrayed in a state of guarded anticipation, their sentiment improved but tethered closely to the broader economy (which, depending on whom you ask, is either landing softly or about to tip into chaos). They are — like carriers and brokers — gearing up for what could be another challenging year.
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