Demand for road transport remains weak, in a gloomy context for the European economy. This situation is pushing prices down and penalising the profit margins of carriers, whose costs are ever-increasing. This disastrous equation complicates decarbonisation efforts.
1. A struggling European economy
European economic activity remained weak in 2024, with gross domestic product growth forecasts limited to 0.9% in the European Union (EU) and 0.8% in the Eurozone, according to the latest estimates from the European Commission. This is slightly better than the 0.4% growth recorded in 2023 in both the EU and the eurozone. But the situation is very contrasting: on the one hand, there are dynamic countries such as Spain and Poland, with growth forecast at more than 3%, and on the other, countries in decline such as Germany (-0.1%) or Austria (-0.6%).
- Germany's decline is particularly worrying, taking into account the weight of this country in the European economy. While a slight growth of 0.1% was still expected in the spring 2024 forecasts, the country is preparing to experience its second consecutive year of recession. Germany is being hit particularly hard by the war in Ukraine, which has driven up gas prices, and by the contraction in Chinese demand, which is affecting its exports. More than 60,000 job cuts announced by German industry for twelve months.
- In France, the situation is more favourable with a growth outlook slightly above the European average. However, this is a result that needs to be qualified. Growth mainly benefited from an “Olympic Games” effect which allowed it to rise by 0.4% in the 3rd quarter, compared to +0.2% in the first and second quarters. But the last quarter is expected to end with zero growth. Moreover, these positive figures have only been driven by household consumption. After already falling by 1.8% in the previous three quarters, business investment recorded its fourth consecutive quarter of decline, falling by 1.4% in the third quarter of 2024 alone. The threats to industrial employment are therefore very strong. "Unemployment increased slightly to 7.4% in the third quarter of 2024 and announcements of social plans are increasing," notes the Rexecode institute.
2. Critical political instability in France and Germany
The year 2024 was also marked by increased political instability in Europe’s two main economies. In France, following the defeat of the presidential camp in the European elections in June, Emmanuel Macron decided to dissolve the National Assembly. The subsequent parliamentary elections gave no political party an absolute majority, which paved the way for a period of great instability. France had to wait 51 days for the appointment of a new Prime Minister, Michel Barnier. The new government's priority mission was to pass a bitter-tasting 2025 budget, marked by spending cuts and tax increases. A scenario fatal to the new government, which was forced to resign after a motion of no confidence was voted on December 4. France therefore finds itself once again in the midst of political uncertainty, and in a very unfavourable budgetary context since public deficit forecasts have been revised upwards, to more than 6% of GDP. All this is not very reassuring for economic circles.
Germany is also experiencing a deep political crisis. Early November, The removal from his position as Finance Minister of the FDP Christian Lindner by Chancellor Olaf Scholz has led to a break-up of the FPD-SPD-Greens coalition that had been in power since September 2021. As in France, it was the vote on the 2025 budget that was fatal to this coalition. Early elections are expected to be held in March 2025.
3. A solid disinflation process
The disinflation process that began at the end of 2022 has globally continued. Admittedly, a rebound to +2% was observed in October, after +1.7% in September, under the effect of a rise in oil prices and base effects relating to energy prices. However, the overall trajectory is favourable as the inflation rate for the whole of 2024 is expected to fall to 2.4%, compared to 5.4% in 2023, according to the latest forecasts from the European Commission. Headline inflation is still expected to return to the 2% target in the fourth quarter of 2025, in line with June 2024 projections, the European Central Bank estimates.
The fall in the inflation rate owes much to the fall in energy prices. Inflation in food and non-energy industrial goods stabilised around historical averages, while inflationary pressures remained strong in services.
In October, the European Central Bank cut its key interest rate for the third time since its easing cycle began in May. Long-term rates in the eurozone have declined and are now expected to remain slightly above 2%. The downward adjustment since spring largely reflects expectations of lower inflation.
However, this positive factor has not enabled growth to be boosted to the level expected. Despite disinflation, households and businesses are cautious in their spending and investments, due to an uncertain economic and political context.
4. Road transport sector in serious difficulty
This situation weighs heavily on the activity of road carriers. Eastern European carriers have been hit hard by the slump in the German economy, which has weakened demand. They are therefore turning to other markets, sparking fierce competition which has an impact on transport prices.
- Falling prices
The Upply Road Freight Rate Index for Europe, which stands at 122.4 points in the third quarter of 2024 on the spot market, fell by 4.4 points compared to the previous quarter and by 6.1 points year-on-year. Meanwhile, the road freight rate index on the contract market remained stable quarter-on-quarter at 127.2, but fell by 2.2 points year-on-year.
Source: Upply Freight Index
- Rising costs
Only one factor was favourable to transport companies in 2024: the fall in fuel prices, linked to the decrease in oil prices. "Despite the substantial production cuts implemented by OPEC+ and persistent geopolitical tensions throughout the year, the price of Brent is currently down 5% compared to the start of the year," IFPEN highlighted in a dashboard published at the end of November. This trajectory is explained by weak global demand for oil, particularly in China. On the other hand, the United States now has sufficient production capacity to calm excessively high inflationary pressures. "Brent is gradually tending to stabilize around $75/barrel, which seems to be its new equilibrium point," estimates IFPEN.
On the other hand, in other cost items, carriers have suffered sharp increases. Personnel costs, which represent the largest cost item along with fuel, have increased considerably over the past two years. High inflation in 2022 and 2023 has weighed on wage demands, even as the sector struggles to attract staff, particularly for driving positions. In Germany, in the road transport sector, the minimum wage for heavy goods vehicle drivers increased by 3.42% on 1er January 2024, to reach €12.41 per hour. A further increase of 3.3% is expected on 1st January 2025, bringing this amount to €12.82/h. These increases only concern the minimum wage but will obviously influence the salaries negotiated in professional sectors and companies. In Poland, according to a survey by the Polish Road Transport Institute, the average basic salary of professional truck drivers in Poland in 2023 was around 1,189 euros (about twice the minimum wage in Poland), an increase of almost 17% compared to 2022. In France, according to the latest 2024 CNR assessment of RFT costs, driving personnel costs show a growth of 7.5%.
Other cost items are also increasing. According to the CNR, the evolution of road transport costs for goods excluding fuel amounts to an annual average of +5.5% in France. In addition to the costs of driving personnel, the increases concern structural costs (+5%), equipment holding costs (+3.5%) and the increase in toll rates (+3%).
This situation was of course not the prerogative of French carriers. It was reflected in all EU countries and beyond. Everywhere, fierce competition has prevented cost increases from being passed on to transport prices. The pressure of falling revenues and rising costs has put pressure on the working capital of transport companies, often with dramatic consequences.
5. A slump that is spreading to Eastern Europe
In France, according to Altarès data, there were 1,339 failures of freight transport companies in France, an increase of 37.8% year-on-year. Of this total, 939 resulted in a judicial liquidation. Small structures with fewer than 10 employees are particularly affected.
Data Source: Altarès
The same observation is made in other Western European countries. According to Statbel figures, quoted by Allianz Trade, the number of bankruptcies in the transport sector in Belgium has increased by more than 50% since the beginning of this year. And in Germany, the failure rate of transport and warehousing companies is about twice the overall business average. In the United Kingdom, the Road Haulage Association has also drew attention to the fragility of the sector. Nearly 500 carriers were forced to close their doors in 2023 and the 2024 trend suggested a 10% increase in bankruptcies. The Road Haulage Association (RHA) made an urgent call to the government.
But one of the highlights of 2024 is that the difficulties now also concern the fleets registered in Eastern Europe and in particular that which became No. 1 in Europe, the Polish fleet.
Polish road transport companies play a key role in the country’s economy, accounting for 7% of its GDP and 6.5% of the employment. However, the economic situation in Europe, and more particularly in Germany, has led to a decline in production and consequentially in the demand for transport. Confronted, as elsewhere in Europe, with the simultaneous increase in costs, Polish transport companies are feeling the ever increasing pinch of debt.
As in any crisis, the problems are accumulating. Late payments explode, road tolls increased again on the 1st November 2024 and rolling staff costs were revalued twice in 2023. The lack of staff is being cruelly felt: 30,000 drivers are still needed according to employers’ organizations. They also indicate that 60% of international transport is carried out with non-EU staff, including Ukrainians, Belarusians, Georgians and even Indians and Filipinos. The war in Ukraine has partly led to a drying up of the driver recruitment pool. But it has another effect: it brings new low-cost competition, that of Ukrainian carriers that have benefited since 2022 an agreement facilitating the exercise of their activity in the EU. The agreement has been extended for 2025, with some adjustments to meet the discontent of Polish carriers. More effective monitoring and control of foreign carriers has been in place since November 1, 2024, with the SENT monitoring system. This will mainly concern Ukrainian carriers, who can currently transport goods to and from Ukraine without a permit. The aim is to avoid abuse, for example unauthorized cabotage by these carriers in Poland and unauthorized transport between Poland and other EU countries.
“All indicators concerning our sector are down, more and more companies are closing. If our country does not act, we may not be able to recreate the conditions by which we have conquered European markets”, said the president of the Association of International Road Carriers, Jan Buczek.
6. A consolidation that is deployed mainly between large groups
Although small businesses are suffering more and a race to attain a critical size can be a solution to withstand the downward pressure exerted by large shippers on prices, the serious crisis in European road transport does not seem to activate a massive wave of consolidation at the moment, even if some large road transport companies have made targeted acquisitions. The match is mostly being played out at the level of large transport and multi-activity logistics groups.
The movements observed in 2024 are following the trend seen in 2023. Firstly, the major maritime shipping carriers continued their purchases in land transport. In January, Hapag Lloyd bought ATL, a British transport company of 120 trucks. In addition, CMA CGM completed the acquisition of Bolloré Logistics in February. Although Bolloré Logistics' main activity is maritime and air freight forwarding, the transaction also brings warehousing activities and represents an attractive gateway to European land transport.
In a separate development, Sennder has signed a €1 billion deal to acquire CH Robinson's European Land Transport (EST) business, which is expected to make Sennder one of the top five full truckload players in Europe.
Finally, the main operation of the year in Europe remains the acquisition of DB Schenker by DSV for 14.3 billion euros, a transaction which should be finalized in 2025. The combined turnover of the road transport divisions of DB Schenker and DSV amounts to 13.8 billion euros.
7. The challenge of decarbonising road transport
In early 2024, the European Union set new decarbonisation targets: reducing emissions from new heavy goods vehicles by 45% from 2030 compared to 2019, and by 90% in 2040. A tight schedule that stimulates technological advances. Manufacturers have chosen to develop battery-powered electric trucks in particular to rapidly reduce the ecological impact of road transport. The first electric trucks suitable for long-distance transport are already on the market. According to a review by the Association of European Automobile Manufacturers (ACEA), at least 45 models of battery electric trucks are available today in different configurations. Hydrogen-powered trucks (electric fuel cell and hydrogen combustion engine) is the second major zero-emission technology, but the market is less developed, even though the first trucks are in service.
But the market's adoption of these zero-emission vehicles is significantly hampered by the cost differential between a diesel vehicle and an electric vehicle, and the erosion of profit margins in 2024 further complicates the equation.
The global market is in decline: truck registrations in Europe fell by 7.5% in the first three quarters of 2024, totalling 249,708 units. Diesel remains largely predominant with 95.3% of registrations, or 237,937 vehicles (-7.3%). At the same time, the number of registrations of battery-electric trucks reached 5,510 units, down 6.6%. But there are significant disparities. Germany leads the way with 2,377 electric trucks registered in the first 9 months of 2024, representing a growth of 56.8% compared to the same period in 2023. France comes in second with 857 registrations, but this represents a decline of 58.4% year-on-year.
Aid measures for the acquisition of zero-emission trucks have been put in place. In France, ADEME launched the E-TRANS energy saving program, which aims to provide financial support to road transport professionals and local authorities to electrify their heavy vehicle fleets, through purchasing assistance, long-term rental or retrofit of heavy goods vehicles. Another example in Poland: the Commission and the EIB (European Investment Bank) have approved a Polish programme to support the purchase or lease of zero-emission vehicles, with a total amount of 2 billion zlotys (about 470 million euros).
However, according to ACEA, this remains insufficient. "To enable rapid market adoption of these vehicles, there is an urgent need to put in place favourable conditions, including a dense network of charging infrastructure suitable for heavy-duty vehicles, effective carbon pricing and additional measures that support fleet renewal and investments by transport operators," the European manufacturers' association believes.
The regulations are there, as are the requirements of shippers, but the evolution of road transport prices shows that the current remuneration of road transport services does not allow investments to be made that match the stated ambitions.
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