Transportation & Logistics Analysis

Polish hauliers' blues should be short-lived

February 20 2020

In Poland, road hauliers' operating costs could increase by between 7% and 15% by the end of 2020. Business leaders are not hiding their concern. The sector needs to change to keep its place in the European rankings.

Over the last 15 years, the Polish fleet has become one of the leaders in the European road freight transport sector. Yet, morale among Polish haulage company bosses is low. According to Maciej Wronski, chairman of Transport i Logistyka Polska (TLP), the main Polish road hauliers' representative body, the sector is currently going through a crucial transition process which has raised questions about its operating model.

At TLP's request, consulting company PwC Poland has carried out a study of the prospects for development of the road transport sector over the 2020-2030 period, which has confirmed that it is under threat. It draws attention particularly to the Mobility Package currently being negotiated in Brussels, the shortage of drivers, environmental regulations and higher road tolls.

Growth has reached its peak

"The Polish road transport sector is currently at the peak of its growth phase," the report finds. In the short term, however, the signs are quite favourable. After a 5.8% drop in the tonne-kilometres covered by the Polish fleet in 2018 as compared to 2017 (source: Eurostat), a recovery was expected in 2019. According to PwC, traffic should rise from 1.17 billion tonnes in 2018 to 1.44 billion in 2022, which represents an annual increase of 5.3% (4.6% for domestic traffic and 6.9% for international traffic). The Polish fleet will thus retain its position as the undisputed leader of the European road freight transport sector. It should be said that Poland can rely on the dynamism of its own economy. PwC highlights the prospects for further increases in consumption and draws attention to Poland's capacity to attract distribution centres, citing, notably, Amazon, Zalando ad Lidl as recent examples.

But in the medium and long term, there are clouds on the horizon. Until now, international road transport has grown at a markedly faster rate than domestic transport. This trend could be reversed, however, after 2022, according to PwC, as a result of new European legislative measures.

The impact of the Mobility Package

The first "threat" facing the Polish road transport development model is the Mobility Package presented by the European Commission in May 2017. Negotiations on the package are intense but are moving forward. On January 21 2020, the European Parliament transport commission approved the agreement reached in December 2019 via the EU "trilogue" discussion process. Implementation is close and PwC considers that the new regulations will have a huge effect on the sector from 2022 on.

The reform mainly concerns driver posting, rest times and cabotage. It aims to put an end to the distortion of competition in the European road transport sector and to give drivers better working conditions.

From the Polish point of view, its implementation will result among other things in increased costs for hauliers and lower revenues for drivers as a result of the restrictions placed on their access to the market. Today, Polish drivers operating abroad account for 64% of the EU's international traffic. A large part of their activity is under threat, therefore.

Driver shortage

As we noted in our article, European road transport - 10 years of change, the shortage of drivers is affecting the European economy in general but Poland's in particular. The shortfall, which was estimated at 100,000-110,000 in 2015, should rise to 200,000 by 2022, which is to say 20% of total demand, according to PwC. Driver retirements will not be sufficiently covered by newly trained replacements. Drivers from outside the European Union are already being recruited in neighbouring countries. 72% of foreign drivers in the Polish fleet were Ukrainian in 2018 and recruitment in Central and South East Asia is now under consideration, according to Grzegorz Urban, head of PwC's transport and logistics team. "Although there is also a shortage of drivers on some foreign markets, the prospect of working in Europe is still attractive for employees from other continents because of the difference in salaries," he said.

The benefits of digitalization

With all these worrying signs, there are clearly good reasons for the low morale among Polish hauliers. However, PwC's study also highlights the kinds of changes the sector can make to transform its development model.

Digitalisation is high up the list of possible solutions. "Implementation of digitalization solutions will be crucial for reducing operating costs, adapting services to changing customer needs and implementing solutions with high added value," PwC says.

For the time being, the Polish road transport sector is not very digitalized. Initially, it will be for the bigger groups to start the process, even though this "may create an additional barrier for smaller businesses and increase market concentration", according to PwC. This obstacle can nevertheless be surmounted, thanks to emerging digital service platforms which offer standard solutions at attractive prices, thus enabling all operators to participate in the digital transformation process.

The heavy goods vehicle revolution

Another source of change seen as offering hauliers promising prospects for improving their competitiveness is the new technology being applied to transport equipment. PwC sees two major possibilities: autonomous vehicles and the use of new propulsion techniques to reduce carbon dioxide emissions. These technological innovations should have an impact on the two main components of operating costs: labour and fuel.

In both areas, the industry is still largely in the test phase. According to PwC, tangible results will appear in five or 10 years depending on the technology in question. In the event that partial vehicle autonomy is achieved, notably via platooning, the reduction in operating costs could reach 15% by 2025 as compared to 2016.

After 2025, the savings achieved through the introduction of new equipment could enable operating costs to be reduced by as much as 28% in relation to 2016, PwC estimates. This economic miracle will be achieved through a combination of vehicle autonomy and the energy savings offered by new engines. It would seem to be reasonable, however, to temper this hypothesis since it involves getting rid of the driver completely. Legislators will probably not have time either to check the safety of the technology used or to make the necessary legal changes for the arrival of such vehicles in public driving areas. Also, one should not lose sight of the fact that total autonomy will certainly reduce the number of drivers but will also result in higher demand for autonomous systems specialists.

Sector consolidation

Gains may be expected in the medium term but, in the short term, the introduction of new equipment and technology will require in an increase in investment. It will, therefore, only be possible for big companies or smaller companies which have been able to form larger groupings to benefit from economies of scale. Companies which are unable to adapt to the new situation will inevitably be unable to compete on equal terms on cost and service. Consolidation in Poland's road transport industry seems therefore inevitable.

Ways of succeeding

The Polish fleet will necessarily have to go through a re-evaluation phase since its fundamentals are under attack. Over several decades, it has built its European leadership on two main components: competitive labour costs and a close trading relationship with Germany. The first of these components has been put under strain by the driver shortage and the introduction throughout Europe of a new social model for drivers. The second is also under pressure, notably as a result of the deterioration in the performance of the automobile sector, which is having major impact on the German economy.

That said, the Polish fleet has found additional growth in the vigour of the Polish economy, which is continuing to grow at an impressive rate (4% per year on average since 2004). European chartering offices are continuing to move to Poland because personnel are well trained there and costs are still attractive. Because the country's fleet is more modern than elsewhere in Europe, its operating costs are more competitive.

The process of natural selection among transport companies, which is looming in Poland as a result of changes to social conditions and digitalization, will not stop at the country's borders, moreover. It will spread throughout Europe. The transformation of Polish transport companies will help them to expand abroad and take up position among the country's 400-500 small and medium-sized exporting companies and industries as part of a German-style Mittelstand.

The Polish fleet has in hand all the cards it needs to maintain its leadership in the road transport sector. Any blues there are, therefore, should be short-lived!

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With more than 20 years of experience in the international supply chain, William works as a road transportation expert for Upply. Entrepreneur by nature, he has successively worked in operational and functional management among various industries, such as chemistry, automotive and building materials; alternately shipper and service provider.
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