Entering the last quarter of 2023, the freight market has entered an era of serious recalibration. The optimism that surged in the third quarter has now been tempered by greater introspection, as signs emerge of a market that will remain subdued for a longer period of time. This new normal is less about the turmoil of the past and more about a steady adjustment to prolonged market softness.Thank you for reading this post, don't forget to subscribe!
The second half of 2023 has brought with it several large bankruptcies so far, bringing a new awareness among carriers and brokers of how fragile the market balance really is. As Q4 unfolds, much of the freight executive appears to be adopting a more defensive stance, suggesting collective acceptance of a “longer low” market outlook.
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This conservative outlook is evident in the latest Freight Sentiment Index. North American supply chains now face the challenge of navigating a market that continues to decline and with little hope of a turnaround until the second quarter of 2024 at the earliest.
The Q4 2023 Freight Sentiment Index is 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 provide a holistic insight into the health and future expectations of the industry from hundreds of respondents.
In the first reading, measured in the fourth quarter of 2022, a year earlier, shippers recorded an index of 12.68, indicating modest confidence. That sentiment declined steadily in subsequent quarters, reaching a low of 8.32 in Q3 2023, and now rising marginally to 9.79 in Q4 2023.
Brokers and 3PLs started Q4 2022 with a low sentiment of 9.84, falling further to 6.97 in Q1 2023. Their sentiment fluctuated, climbing to 9.39 in Q2 2023 and reaching 12.55 in Q3 2023, indicating a resurgence of confidence, before falling again to 8.78 in Q4 2023. .
Carriers started off Q4 2022 with the lowest sentiment at 4.87, showing a slight improvement to 5.97 in Q1 2023, before falling significantly into negative territory at -0.52 in Q2 2023. This negative value may reflect specific challenges or a pessimistic outlook within the segment. , There was a significant improvement to 9.17 in Q3 2023, which declined once again to 4.41 in Q4 2023.
The overall sentiment index reflects the cumulative sentiment across all segments, starting from 9.13 in Q4 2022 and gradually declining to 6.48 by Q2 2023. A rally to 10.01 signals a temporary increase in confidence or better conditions, leading to a return to 7.66 in the third quarter of 2023. In Q4 2023.
Note: Survey data was recorded in the first two weeks of October.
FreightWaves Sonar: The net change in total trucking authorities (CDNCA.USA) has recorded negative weekly figures for nearly a year in a row, but capacity continues to outpace volume.
Carrier Emotion: A market in search of balance
Current sentiment among North American freight carriers reflects a sector looking for stability in Q4 2023, with the Freight Sentiment Index softening to 4.41 from 9.17 in the previous quarter. The decline encapsulates the industry’s ongoing struggles in attempting to right-size against a backdrop of excess capacity and economic uncertainty.
Data from recent months reflects a truckload market that is still digesting the influx of new operating officers, a sharp contrast to the incremental growth in tender volumes since 2018. The disparity suggests that carriers are operating through capacity surplus, which has adversely impacted the market. Segment margin.
The economic turmoil that began in 2022 continues, with the demand curve not rising fast enough to support the breadth of available capacity. This lack of demand is reflected in the subdued sentiment data, which shows that although the horizon is promising, the immediate path still remains difficult.
The shuttering of freighttech darling Convoy and insights from industry leaders highlight the sector’s upheaval and the challenges facing carriers. These closures not only reflect the existing overcapacity but also act as a catalyst for a much-needed correction in the market.
Some analysts provide a cautiously optimistic timeline for this recovery, suggesting that a realignment of supply and demand should occur within a year and a half if the economy and carrier consolidation trends continue. This forecast is consistent with data showing an increase in the exit rate of trucking executives through the end of 2022, a potential harbinger of a more balanced market on the horizon.
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While 2024 may bring the balance that carriers want, near-term profitability remains negative, even if lower than in Q1 or Q2. This hesitation in the near-term outlook is balanced by strong confidence in long-term profitability, which remains in positive territory despite the decline from the previous quarter.
Employment indices present a mixed view, with immediate workforce sentiment slightly negative, pointing to cautious staffing strategies. In contrast, the long-term perspective is more stable.
Investment sentiment has cooled, with the index retreating to 2.17, suggesting a wait-and-see policy as carriers gauge the timing and strength of the market rally.
These indices collectively tell the story of a sector undergoing recalibration. While carriers are grappling with near-term challenges, with an eye on future stability, their sentiment is tempered by experience and anticipation of an industry on the cusp of change.
FreightWaves Sonar: Outbound tender rejections (OTRI.USA) versus outbound tender volume (OTVI.USA) over the past five years. Despite continued growth in total volume through 2023, rejections have still not risen above historically low levels.
Broker sentiment: navigating a narrow path
Brokers and 3PLs are facing a clear change in sentiment as they approach Q4 2023, with overall freight sentiment declining from Q3’s 12.55 to 8.78. This slowdown reflects the broader contraction in the freight forwarder market, where volume contraction and tight capital environment squeeze margins, testing the resilience of the brokerage sector.
Despite this decline, a nuanced comparison of year-over-year sentiment suggests the sector is potentially more protected against hurricanes than asset-based carriers (although the shuttering of Convoy puts that idea into question). . The nimble nature of brokers may provide them with some agility to move in response to emerging market dynamics, albeit in a more challenging landscape. Like the carriers, they are likely to continue to struggle until the market turns in the carriers’ favor.
The surprise closure of Convoy, a digital brokerage that was recently one of the most promising and best-funded upstarts in logistics, is emblematic of the current sentiment in the brokerage community. Like carriers, brokers are struggling with overcapacity for service that fails to keep up with demand.
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This sentiment has been bolstered by widespread fiscal caution seen in the logistics sector. The notable slowdown in mergers and acquisitions indicates a collective pause among investors, who are wary of committing in a volatile market, impacting liquidity and expansion prospects for brokers and 3PLs.
Within this contraction lies a bifurcated path for brokers: on the one hand, a scenario full of challenges such as declining freight volumes and increasing competition, and on the other, opportunities emerging from market consolidation. Here, stronger institutions can strategically absorb the customer and talent reserves of less solvent competitors, thereby ultimately positioning themselves advantageously for market uptrends.
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Navigating through Q4 2023, brokers and 3PLs must walk a tight path of managing operational efficiency while fostering innovation, all in an era in which fiscal prudence is paramount. The subdued sentiment thus takes a snapshot of a sector at a crossroads, eyeing the potential for a rebound, but firmly rooted in the reality of today’s economic headwinds.
FreightWaves Sonar: General Activity Spread Index of the Federal Reserve Bank of Philadelphia (PFIFA.USA). It estimates changes in normal business activity over the next six months for reporting manufacturing firms.
Sender sentiment: stable amid uncertainty
As Q4 2023 approaches, shippers are feeling a slight increase in their overall freight sentiment, rising from 8.32 to 9.79. But the numbers tell a deeper story of cautious navigation through uncertain territory.
Near-term profitability has increased to 9.8, indicating a restrained but positive reaction to current market conditions. This gain compared to Q3 reflects a cautious optimism as the industry navigates through excess capacity and elevated inventory levels, which continue to pressure margins. Despite immediate headwinds, the long-term profitability outlook remains more positive, standing at 21.2, indicating that shippers are counting on strategic adjustments and market improvements to boost future earnings. This confidence likely stems from demand stabilization and anticipation of a more balanced supply chain scenario going forward.
Workforce sentiments tell a more complex story. Near-term workforce sentiment has declined to just 0.53, suggesting that the number of employees will remain unchanged for now. In contrast, the slight improvement in long-term workforce sentiment to 5.97 suggests that shippers are cautiously optimistic about future labor conditions, perhaps anticipating a return to employment stability.
On the business investment front, there has been a notable decline at 11.47, underscoring a strategic shift towards fiscal prudence. Investments are being weighed more carefully, leaning toward investments that can provide immediate value in streamlining operations or reducing overhead. This conservative approach to capital spending reflects the broader industry trend of risk minimization.
Shippers are then portrayed in a state of guarded anticipation, with their sentiment improving but closely tied to the broader economy (which, depending on who you ask, is either slowly descending or is going to fall into chaos). Finally, shippers – like carriers and brokers – are preparing for another challenging year.
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