The road freight industry, often seen as the lifeblood of modern economies, plays a pivotal role in the movement of goods across the globe. It serves as a barometer for economic health, reflecting the pulse of various industries and consumer demand. To understand where the road freight sector is headed, we delve into the realm of economic forecasting, exploring how it is intrinsically tied to broader transport movements.
Consumer demand is one of the primary drivers of the road freight industry. When the economy is thriving, consumers are more inclined to spend, leading to increased production and transportation of goods. Conversely, during economic downturns, demand can drop, affecting freight volumes and the revenues of transport companies.The road freight industry is also deeply intertwined with international trade.
In this article, we will endeavor to analyze the current state of the industry in Europe.
Purchasing managers’ indexes (PMI)
Let’s begin by examining the state of European economies. As an example Key Performance Indicator (KPI) for comparison, we will use the Manufacturing PMI index.
Considering the indicator recorded in AUG 23, the current average for the EU stands at 43.5. This figure is slightly higher than in the same period of 2022 when it was 42.7 but significantly lower than the global average of 49.
However, there is a noticeable disparity among individual countries. The highest index was observed in relatively smaller economies such as Greece, Norway, and Ireland, while the lowest was in the largest European economy, Germany, where the PMI index is below 40.
The charts below illustrates the indices (as well as year-to-year dynamics enclosed in parentheses) in various European countries based on Trading Economics data:
as well as G20 nations:
In most cases, a year-on-year decline in this indicator was recorded. However, a clearer picture emerges when we look at the overall Eurozone PMI index from a broader perspective, where we can observe a clear and unfortunately strong downward trend:
The reading of this indicator in AUG 2023, however, provides hope that this year’s summer could mark a turning point (although it’s worth noting that similar hopes were held when the indicator hit a local low about 5 points higher). What remains indisputable is that this indicator is at its lowest level in over a decade (excluding a brief drop below 35 in Q2 2020).
Container transport volume
The second indicator for assessing the state of the transportation industry is the analysis of the flow of goods handled by the largest container ports. While ports in China have recently been experiencing significant growth, the situation in Europe is quite different.
According to Actia Forum, during the initial half of the year, the top ten European container ports collectively processed more than 30.4 million TEU, reflecting a decrease of 7.25% compared to the same period last year and an 8.86% decline when compared to the corresponding period in 2021.
Source: Actia Forum, Port Monitor, Report “Significant decreases in container handling in the largest European container ports”: Link
The most significant declines are observed in German ports such as Hamburg and Bremerhaven, which may be linked to the low PMI reading we mentioned earlier.
An even worse situation has been reported in French ports, as reported by the PortEconomics.eu, which also indicates that ‘most ports expect container volumes to recover somewhat in the second half of 2023.’
Road freight rates
The last indicator is road freight transport prices in Europe. As indicated by the upply.com service, these prices continued to fall in the 2nd quarter of 2023, primarily due to declining demand.
The Upply contract freight rate index even surpasses that of spot rates, a trend not seen in six years:
Source: Upply: “Weaked economy impacting European road freight rates“
At first glance, it is evident that despite significant declines in the index over the past quarters, price levels remain approximately 12-15% higher compared to the pandemic period.
However, it’s essential to remember that this is primarily due to the structural increase in carrier costs rather than increased demand. The key cost drivers for road hauliers, namely fuel and labor costs, have experienced substantial increases. While diesel prices in 2023 have finally decreased compared to the peaks of 2022, they still remain significantly higher than before the Ukraine conflict.
Another factor is driver wages, which have risen considerably due to high inflation in most EU countries, driving wage demands, and also due to a shortage of professional drivers.
The notable decline in spot market rates, even in comparison to the contract market, can primarily be explained by weak demand. The upply.com service indicates that one of the main factors contributing to this situation is reduced consumption, as the disparity between price increases and wage growth has diminished the purchasing power of Europeans in real terms.
Experts do not anticipate a surge in demand in global markets later this year, which may lead to further turbulence in the EU transport market. The industry has faced severe challenges, unprecedented in scale. The first powerful blow was dealt by the repercussions of the global COVID-19 pandemic which exposed vulnerabilities in global supply chains, leading to disruptions in road freight movements The next one resulted from reduced demand and growing economic instability worldwide, and the most recent hit came from Russia’s aggression in Ukraine, triggering a geopolitical conflict on the international stage.
Will the coming months be better? Perhaps. The PMI index indicates the possibility of a rebound, but on the other hand, the ongoing struggle with the new economy leads us to expect potential bankruptcies in the industry in the near future, as well as possible consolidation of smaller entities. One thing is certain: during times of turbulence in global markets, it’s even more crucial to focus on choosing reliable partners. In our opinion, this is the time for production companies to seek efficient road transportation companies. The market is a challenging playground where top performers can be selected based on various qualifications, not only price but also quality, efficiency, and investments.
At DON Trucking, we are using this period of economic uncertainty to transform and invest even more in the direction of sustainability through decarbonization and digitalization. Currently, 2/3 of our vehicles are powered by low-emission bioLNG fuel, and in the coming months, we aim to increase this share further. The same applies to the continuous improvement of our OTMS and integration with as many partners as possible. All of this is to achieve our goal of being ‘Carbon Neutral by 2025.’
We encourage all logistics companies to choose DON Trucking as their trusted partner by contacting our sales department [link].