European contract rates rally in Q3 as spot rates continue to fall
European haulage spot rates fell for the fourth consecutive quarter, while contract rates climbed for the first time since Q4 2022, according to the latest European Road Freight Index for Q3 2023.
The index, published by data, market intelligence and road transport sector experts Upply, Ti and IRU, revealed that contract rates in Q3 2023 rose to 128.1, which is 1.4 points higher than in Q2 2023 and just 0.4 points down on Q3 2022. However, spot rates for the same period fell to 125.4, which is 1.2 points lower than in Q2 2023 and 14.8 points down year-on-year.
In a joint report Upply, Ti and IRU said freight rates are expected to remain subdued but are expected to stabilize in 2024 as European demand recovers and higher costs, especially from CO2 tolls, which are launching in the near future in central Europe, begin to kick in.
It added that the contract rates are being impacted by falling short-term demand-side pressure on road freight as a result of consumers suffering from a slower economy, which has resulted in them buying fewer goods, which in turn has seen businesses reduce their output.
Looking ahead, the report said that toll price increases in Germany in December could increase toll costs by up to 83%, an increase which will likely be passed on to customers, which agaoin could slow demand.
New forecasts from IRU also show driver shortages across Europe are expected to worsen again, with 11% of job opening expected to remain unfilled in 2024.
A range of additional costs are also impacting on rates, including wage inflation, with transport and storage sector wages are up 17.6% compared to 2019 levels, as drivers remain in short supply.
Other cost increases include October fuel prices, up 14% up compared to June 2023, the rising cost of spare parts, which rose 15.9%, a 21.4% increase in vehicle maintenance costs, and a 6.3% increase in insurance costs.
Thomas Larrieu, Upply chief executive, said: "The recent Upply data show that road haulage prices are holding up relatively well despite a rather unfavourable economic climate. This is mainly due to a constantly rising cost structure for hauliers. Significant increases in fuel prices and wages are helping to keep upward pressure on prices, which is partly offsetting the downward pressure exerted by weak demand.
"Yet, it’s important to observe that spot prices have been dipping for four consecutive quarters, signaling persistent market volatility and hinting that a market rebound might not be on the near horizon."
Michael Clover, Ti’s head of commercial development, added: "Toll price increases are expected to start in Germany in December before sweeping across much of central and Eastern Europe in 2024. The increases are of a magnitude sufficient to make current operating models unsustainable for many operators, so the expectation is that they will try to pass on the cost to shippers, raising rates for freight within and transiting through affected countries.”
Vincent Erard, IRU senior director for strategy and development, said: “The road transport industry is engaged in an unprecedented transformation, having to both respond to
growing transport demand (+50% by 2050) and decarbonise at the same time.
Without support for the sector, made up mainly of small and medium-sized companies whose margins are low (1-2%), in a context of increasing prices, costs and investments (fuel, tolling, labour costs, vehicles, etc) and an increasingly unsustainable shortage of drivers (225,000 in the 2nd quarter 2023), there is a great risk of not achieving any of the economic and environmental objectives.”
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