On a quarter-on-quarter basis, both spot and contract prices are down, by 7.5 and 2.8 points respectively, according to the latest Upply x Ti x IRU European Road Freight Tariff Index for Europe.
The European road freight market has seen spot rates fall for the second consecutive quarter, a significant change since the start of the Covid-19 pandemic. Compared to the previous quarter, the spot rate index fell by -7.5 points to 132.5 points. This is the first time since Q2 2020 that rates have fallen for two consecutive quarters.
In addition, the spot market index has fallen below the level of Q2 2022, when the cost surge after the war in Ukraine first became apparent. Nevertheless, spot market rates are still up 8.9 percentage points year-on-year.
The index of contract market rates also fell by 2.8 points quarter-on-quarter, the first decline in six quarters, but is still up 10.7 points year-on-year. As volumes decline and available capacity improves, the downward trend in rates looks set to continue in 2023.
The benchmark index of European road freight spot rates for Q1 2023 was 132.5 points, 7.5 points lower than in Q4 2022 but 8.9 points higher than in Q1 2022.
Q1 2023 is the second consecutive quarter of decline in the spot rate index.
The European Freight Contract Price Benchmark Index was 127.2 points in Q1 2023, 2.8 points lower than in Q4 2022 but still 10.7 points higher than in Q1 2022.
Fuel prices in Q1 2023 were 9% lower than in Q4 2022.
In 2023, 9% of drivers’ positions are projected to be unfilled, slightly down from 10% in 2022.
Freight rates are expected to continue to decline in Q2 2023, but remain high relative to historical norms as supply-side pressures keep costs high. At the end of the year, volumes are expected to start to increase, putting upward pressure on rates.
Persistent inflation continues to affect road freight rates
In Q1 2023, spot rates fell on average 1.5 times faster than contract prices. This is due to a slowdown in demand in European economies, easing the immediate demand-side pressure on spot market rates. Despite some moderation in inflation and seasonally adjusted quarter-on-quarter increases in monthly consumption figures in Spain (+1.0%), France (+0.4%) and the United Kingdom (+0.5%), the annual data reflect the impact of persistent inflation over the past 12 months.
Average seasonally adjusted monthly consumption fell by 6% year-on-year in Germany, by 3.9% in France, by 2.8% in Italy and by 4.3% in the UK. As wage increases lag behind inflation, the cost of living crisis is worsening, reducing the willingness and ability to consume goods. This will further reduce demand-side pressure on road freight rates, allowing both markets to further reduce rates.
‘While it is typical for road freight rates to fall in Q1 after the peak of the festive season, this year the fall is stronger than usual. The market seems to be re-calibrating after the strong double-digit spike experienced in 2022, but how far will it go? We are unlikely to return to pre-pandemic conditions, especially as capacity shortages remain a major concern,’ comments Thomas Larrieu, CEO of Upply.
Driver shortages reduce industry capacity and increase labour costs
Although concerns about the energy crisis have eased and energy prices have fallen, last year’s high prices continue to hamper the growth of European industry. Available data for Q1 2023 from official sources show declining production in the UK (-0.5%), Spain (0.3%) and Poland (-0.1%), while France (+0.9%) and Germany (+0.5%) have seen output growth.
Inflation is dampening demand for consumer goods, while demand for capital and intermediate goods remains stable. High interest rates in 2023 are likely to discourage more output expansion, limiting the pressure on rates and allowing rates to fall further.
“The stagnation in freight demand in Q4 2022 has continued into 2023, flattening the driver shortage curve for the time being. However, nothing has changed in terms of the long-term prospects for the profession. The proportion of young drivers remains extremely low. Any surge in demand from European economies will further exacerbate the driver shortage, which in turn will limit economic growth. We cannot turn away from the situation. We must continue to demand both immediate and structural solutions to the driver shortage,’ adds IRU Senior Director Strategy and Development Vincent Erard.
Supply pressures persist despite easing demand-side pressures. The deepening driver shortage is reducing capacity, and while fuel costs have fallen from their 2022 peak, they are still higher than in 2021. The cost of living crisis across the continent is also boosting wage demand in 2023, resulting in higher labour costs. The likely result is a further fall in freight rates due to a slowdown in demand. However, the size and extent of these falls will be limited by supply-side pressures, which have created a higher cost base that will prevent freight rates from reaching historic lows.
‘In the first quarter we saw contract rates start to fall in line with spot rates, as expected, and we expect this trend to continue in the second quarter. As volumes declined in Q1, we saw available capacity steadily increase, easing the pressure on rates, but capacity remains constrained by driver shortages. Rates are forecast to continue to fall in Q2, although seasonal demand will support higher rates in Q2 and we expect rates to remain at higher levels than before the pandemic,’ says Michael Clover, Head of Business Development at Ti.
Author: Rolands Petersons, logistics expert
