Photo: GeorgDerReisende, CC BY-SA 4.0, via Wikimedia Commons

Cost pressure in the European road transport industry is increasing

The road transport and logistics industry in Germany and other European countries is feeling the strain of significant cost pressures. The recent hike in road toll rates on 1st December 2023 in Germany is already impacting companies' operational costs. However, the industry may yet face a surge in prices.

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The European Freight Association of International Freight Forwarders (E.L.V.I.S. AG) is sounding the alarm about potential capacity bottlenecks and a spike in transport prices.

The organisation highlights a concerning trend; a decrease in total mileage in lorry traffic, coupled with an excess of freight space and declining sales expectations. It is thought this scenario could lead to severe repercussions.

With fleets being downsized, there’s a risk that they won’t be available when market demand rebounds, potentially causing price surges on the spot market and limited freight capacities.

Without positive signals from the European Central Bank, such as reduced interest rates, or a fiscal stimulus from German policymakers, the recession will deepen, leading many companies to a gradual demise,” states Nikolja Grabowski, CEO of E.L.V.I.S. AG.

The association’s market report identifies a troubling trajectory in road freight transport. “Numerous freight forwarders may not withstand this pressure, increasing bankruptcies and further reducing available cargo space,” Grabowski explains.

This issue particularly impacts companies reliant on their extensive fleet, making it a liability. The association advises reassessing fleet size relative to the use of permanent subcontractors, exploring new sectors, and considering international expansion.

General cargo costs are escalating

The Federal Association of Forwarding and Logistics reports a rise in general cargo costs. Their latest cost index for groupage freight indicates a 3.2% increase in shipment-related processing costs in the latter half of 2023 compared to the previous year. Absent the dip in fuel costs, this rise would be even sharper.

The hike in costs is primarily driven by increased personnel expenses (up 4.6%) and material costs (up 4.1%). Additionally, expenses for space, energy, insurance, and digital technology operations are contributing factors.

The DSLV also notes the impact of the raised lorry toll rates from 1st December 2023, though they currently account for a modest 3.6% of total costs. The full effect of these new toll rates will be more evident in the latter half of 2024. Extending toll requirements to vehicles over 3.5 tonnes could further escalate costs.

Industry uncertainty

Meanwhile, the logistics indicator developed by the Federal Logistics Association (BVL) and the Ifo Institute offers little optimism.

The logistics sector’s business climate worsened in the first quarter of 2024, with the index dropping to 81.8 points. Both sub-indicators—logistics services and trade and industry sectors—showed declines.

Participants in the survey are less positive about the current business situation and more concerned about the upcoming six months.

Available leading indicators do not forecast an economic upturn at the start of 2024. Order situations across all sectors have deteriorated, with many viewing their order books as insufficient. High sickness rates and ongoing strikes add to the burden. Moreover, recent Houthi attacks in the Red Sea have slightly intensified supply bottlenecks. While the construction sector might temporarily benefit from the mild early-year weather, a broader economic recovery is anticipated only later in the year,” comments Prof. Dr. Timo Wollmershäuser from the Ifo Institute.

Photo: GeorgDerReisende, CC BY-SA 4.0, via Wikimedia Commons