Europe: general decline in road transport prices

Prices for road freight transport in Europe fell in the first quarter of 2023, both on the contract market and on the spot market. However, they remain much higher than the pre-pandemic level.

The Ti/Upply/IRU index of road transport prices in Europe for the first quarter of 2023 bears the scars of the economic downturn. While spot rates had started to fall in the previous quarter, contract rates were still holding up. Now, the two indices follow the same slant, more or less accentuated:

• The index of contract rates fell 2.8 points quarter-on-quarter, recording its first decline in 6 quarters.
• As for spot rates, the decline is increasing. The European index loses 7.5 points quarter-on-quarter, while it had already declined by 3.4 points Q4 2022 compared to Q3.
  
  

Data source : Upply - NB : Our price estimates are based on actual transactions. The index may therefore be subject to revisions as new data are incorporated into the Upply database.

Significant impact of inflation on demand

The first quarter of the year traditionally corresponds to a fairly quiet period in road freight transport, after the end-of-year holidays. But the decline this year is striking by its magnitude, especially in spot prices, which are a good indicator of the state of the supply/demand balance at any given time.

On average, in Q1 2023, spot rates declined 1.5 times faster than contract rates. "This is due to the decline in demand within European economies, which reduces the immediate pressure exerted by this demand factor on spot market rates," points out the Ti/Upply/IRU report. There is generally a contraction in the B2C sphere and a relative stagnation in that of the B2B:

• Seasonally adjusted average monthly consumption fell year-on-year by 6% in Germany, 3.9% in France, 2.8% in Italy, and 4.3% in the United Kingdom. This trend is clearly explained by inflation. Wages have generally not risen to the same extent as prices. The erosion of purchasing power is therefore weighing on consumption, even if the inflationary phenomenon began to ease at the beginning of 2023.
• Similarly, although the rise in energy and raw material prices is showing signs of easing, the phenomenon is affecting the growth of industrial production in some European economies. Overall, demand for intermediate and capital goods remains stable.

Supply under long-term pressure

A reduction in the volumes to be transported logically reduces the tensions in terms of access to road transport capacity. Despite this, we are seeing no collapse in prices. As such, year-on-year, the spot rate index for the first quarter of 2023 is up 8.9 points and the contract rate index is up 10.7 points.

Carrier costs have increased sustainably. Admittedly, fuel prices, which were a major inflation factor in 2022 when the conflict in Ukraine broke out, have come back down quite sharply. They thus show a decrease of 9% in the first quarter of 2023 compared to the previous three months. On the other hand, the context of driver shortages is putting upward pressure on wages, this pressure is even stronger as inflation has also boosted demands. This has now become a structural parameter.

A slight recovery may be seen at the end of the year

As for the immediate future, in the second quarter the decline in road transport prices in Europe is expected to continue, given the sluggish demand. However, its scale will be limited by the necessary passing-on, at least partially, of the increase in costs faced by carriers. Contrary to what has been observed in the maritime container transport, where freight rates have returned to their pre-pandemic level on most corridors after hitting their peaks, road transport prices are not expected to return to historically low levels.

Economic conditions are expected to weigh on demand for much of the year. However, according to IT/Upply/IRU analysts, volumes could start to recover at the end of the year, which would again put upward pressure on rates.

Where to learn more

> Download the Upply / Transport Intelligence report on European road freight rates as of the 1st quarter of 2023 

> See the webinar