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European Road Freight Rates: Spot Rates Dip Below Contracts Amidst Industrial Slump

European road freight spot rates have dipped below contract rates for the first time in seven years. This shift, highlighted in a recent update from the IRU, Transport Intelligence (Ti), and Upply, underscores a complex interplay of factors impacting the transportation sector.

The driving force behind this phenomenon is the juxtaposition of falling spot rates and rising contract rates. Declining industrial demand has contributed to the decrease in spot rates, while increases in contract rates have been triggered by new emission tolls and overall cost escalation.

According to the update, contract prices are surpassing spot rates on various routes, including those from Germany to major European hubs such as Paris, Birmingham, Milan, and others.

The European Road Freight Spot Rate Benchmark Index for Q4 23 stood at 123.8, indicating a 4.5 point decrease from Q3 23 and a significant 14.8 point decline year-on-year. In contrast, the European Road Freight Contract Rate Benchmark Index for the same period was at 129.4, showing a slight increase compared to Q3 23.

Thomas Larrieu, CEO of Upply, emphasized the current market dynamics: “Shippers now have access to spot rates lower than contractual rates, marking a shift that poses challenges for road transport operators amidst declining demand and cost unpredictability.”

Nathaniel Donaldson, an economic analyst at Ti, highlighted the evolving drivers behind the fluctuating rates. He pointed out that while inflation-triggered consumption decline was a key factor previously, the focus has now shifted to production adjustments amidst stabilized consumption levels across the continent.

With industrial output down in key economies like Germany, the overall demand for European road freight continues to dwindle, leading to increased capacity availability and further pressure on spot rates.

Moreover, the operational costs for trucking have been steadily climbing. Over the past three years, labor costs have surged by 28.2%, maintenance and repair by 20.4%, tires by 21.6%, and insurance by 8.7%.

However, the most significant cost impact is expected from the rise in road tolls, particularly the new emission-based tolls. The implementation of such tolls in Germany has already led to an 80% increase in tolls for heavy goods vehicles (HGVs), according to IRU associate director Marie-Anne Cervoni.

Cervoni cautioned that these toll hikes are not temporary and will inevitably translate into higher contract rates in the foreseeable future. The objective of transitioning to emission-free vehicles is clear, but challenges persist due to underdeveloped fuelling and charging infrastructure.

Consequently, these escalating costs are likely to be transferred to customers through contract rate adjustments, putting further strain on carriers’ margins. However, in cases where passing on the costs isn’t feasible, carriers will have to absorb them, exacerbating their financial challenges.

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