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Carriers say Q4 to be less profitable than Q3 despite holiday surge

FreightWaves’ new Freight Sentiment Indexes show shippers, 3PLs, carriers staying positive on whole

The Q4 2022 Freight Sentiment Indexes show carriers, brokers/3PLs and shippers staying mostly positive.

Carriers aren’t feeling confident that the fourth quarter will be more profitable than the third, according to a new set of sentiment indexes built to track how different segments of the freight transportation industry are feeling.

FreightWaves Research recently conducted Q4 outlook surveys directed to separate groups of carriers, shippers and 3PL companies. In them, respondents were asked to indicate on sliding scales from minus-100 to 100 what their feelings were on five topics: near-term profitability, longer-term profitability, near-term workforce, longer-term workforce and business investment environment. Minus-100 would indicate doomsday-like pessimism, while positive-100 would indicate utopic expectations.

The carrier segment scored slightly negative for near-term profitability (minus-2.83), which means that on the whole it feels Q4 will be less profitable than Q3. That belief is likely the result of a variety of current headwinds for carriers, including high fuel and equipment costs, trucking rates coming down from recent highs and the prospect of what many analysts expect to be a subdued holiday season.

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Still, carriers scored in the positive for each of the other four categories, leaving them with an overall average of 4.87. That means that despite a freight market that has turned much more challenging for them in 2022, they’re far from feeling apocalyptic. Their highest score came in the longer-term workforce category (12.28), meaning they expect to be employing more people 12 months from now. In fact, their longer-term workforce score was the highest of the three segments, meaning carriers are more bullish on workforce expansion by Q4 2023 than shippers or brokers/3PLs are.

Chart: (SONAR: NTI.USA, NTIL.USA, DTS.USA). Diesel costs have stayed stubbornly high since shooting upward starting in March. In that same time, the FreightWaves National Truckload Index — a seven-day average of U.S. over-the-road dry van spot rates — has declined more than 20%.

Shippers are the most positive of the bunch, with an overall average of 12.68. They scored near-term profitability 11.10 and longer-term profitability, which is profitability in Q4 2023 compared to Q4 2022, at 17.29. 

Part of the discrepancy between shippers’ near- and long-term profitability can be attributed to the average length of contract bid cycles, which have shrunk from a yearly basis to a biannual or even quarterly one. While the spot market began to deteriorate in March, shippers that move most of their freight along contracted lanes are just now starting to see pricing power shift back in their favor. So for many contract-heavy shippers, 2023 will mark the beginning of mitigation for their transportation budgets, which were heavily distended throughout 2020 and 2021.

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Of course, another factor causing a disparity between shippers’ near- and long-term profitability is the time it takes for inflation to reach the consumer. This statement might be shocking to those who have been to a grocery store or gas station in the past six months, but producers have largely been absorbing inflationary pressures since mid-2021. 

In June 2022, the consumer price index (CPI) — also known as “headline inflation” — reached a peak of 9.1% growth on a year-over-year (y/y) basis. Yet, in that same month, the producer price index (PPI) saw growth of 11.3% y/y, a figure that was not even the highest of 2022. Since June, the PPI has begun to soften significantly, while the CPI lingers near its yearly highs. Shippers, therefore, can expect to benefit from falling input costs while their prices received remain elevated.

Chart: (SONAR: MQFWSCTP.USA). Despite a 2022 decline in performance from companies delivering freight technology solutions, shippers, brokers/3PLs and carriers alike still feel that now is a good time to invest in technology. They scored 18.46, 17.32 and 7.53, respectively.

At 9.84, broker sentiment occupies a middle ground between shippers (12.68) and carriers (4.87). Time will tell if that position holds through future market cycles, but it makes some sense that intermediaries would occupy that spot. 3PLs hold a unique position wherein they act both as shippers when sourcing carriers and as carriers when moving loads for shippers. As cycles pass, the pendulum of freight market power swings from carrier to shipper and back again, with brokers/3PLs operating a model that can benefit from either scenario.

Among the subcategories, business investment ranked highest in 3PLs’ sentiment. A plethora of tools have been developed for brokers’ benefit, allowing them to price more strategically and pinpoint markets with higher freight demand. 

FreightWaves’ SONAR offers access to critical freight data and intelligence as it pertains to monitoring and forecasting load volumes, capacity and rates (both spot and contract) on a national level but also on an individual lane level. FreightWaves’ Market Dashboard provides users with Trusted Rate Assessment Consortium (TRAC) spot rates, which are near real-time, buy-side, all-in spot rates at the lane level.

The Market Dashboard also allows brokerages to benchmark lane-level spot rates with the FreightWaves National Truckload Index – Daily Report (NTID), the daily reported national dry van spot rate, based on TRAC spot rates of 250,000 lanes.

Joe Antoshak

Joe Antoshak heads up FreightWaves' annual rankings and company directory pages as Senior Editorial Researcher. Before FreightWaves, he worked for Transport Topics as a multiplatform coordinator and editorial researcher. He lives in Washington, D.C., and can be reached at [email protected]