One individual who cautions against excessive optimism is Jarosław Bartczak, general director of XPO Polska. In his view, the new year may not necessarily be much better than the previous one.
The difficult economic situation in Germany, the repercussions of increased road tolls, and the financial challenges faced by many carriers, are just a few of the topics covered in this exclusive Trans.INFO interview.
We last spoke at the end of 2022, and during that conversation, you highlighted noticeable signs of an initial slowdown in the sector. At that time, your outlook was not optimistic with regards to a quick recovery, or the situation in the German market. As we can see today, your predictions were accurate. So let’s begin with a summary of the past year – how did it unfold for both the industry and your company?
Jarosław Bartczak, the general director of XPO Polska: I am not proud that these predictions have come true, but they were based on hard economic data, macroeconomic and business reality, not solely related to the transport industry but more broadly to events in Europe and the world. Our economy and Polish transport are highly dependent on what unfolds in mainland Europe.
Last year marked significant changes, unparalleled in recent decades. We cannot assess the situation in Poland, in the economy, and in transport in isolation from the broader perspective of what is happening globally. The world is grappling with challenges posed by Eastern countries, primarily China and its allies, attempting to reshape the world order dominated by the United States. The segment of the world challenging the current order is well-prepared industrially, economically, in terms of raw materials, and militarily.
Europe is caught between these forces, and is seeking its place in this landscape. As an independent business entity, it is highly dependent on both sides, leading to substantial disruptions experienced in the European market and, consequently, in our industry – international transport.
This brings me to the crux of your question – a summary of 2023. It marked the first year in the last decade where, apart from a brief period related to the COVID-19 pandemic, we witnessed disturbances linked to production slowdowns and signs of recession in Europe. Economic growth in Europe was practically zero, with Poland slightly above that level. Naturally, this had repercussions for the transport industry.
Poland, being a key producer for Europe, felt the impact more than Western European countries such as France, Great Britain, Spain, or even Germany, which, in my opinion, is in a more significant crisis than commonly perceived. I anticipate this crisis will endure longer than widely believed.
The past year predominantly brought a decline in volumes, notably in the German and British directions. For our company, the decline in volume was not as significant, as through commercial activities, we managed to offset it by securing new contracts with new customers. This was crucial because a majority of our existing clients experienced volume declines ranging from 10-20 percent.
In terms of volume, we find ourselves at the same level in 2023 as the previous year. However, a notable factor impacting our results was the drop in transport rates, approximately 15% in our calculations. This drop stemmed primarily from lower fuel prices in 2023 and a natural decline due to decreased demand for cargo amid increased transport capacity.
What impact did all these factors have on your company’s turnover?
This is a more intricate topic, given that we significantly downsized our fleet last year, resulting in a reduction in turnover. When assessing typical forwarding and brokerage activities, it was generally lower by about 2-3% compared to the previous year. However, concerning the company’s total revenues, they are approximately 12 percent lower than in 2022.
How did volume declines affect old customers in major markets, especially in Germany, which accounts for around 40 percent of your volume?
Last year in the German direction, we observed a volume decrease of approximately 12-15 percent with clients we collaborated with in 2022. However, it’s crucial to note that this decline with historical clients was offset by contracts with new partners.
Were there any markets where you managed to maintain volumes with existing customers?
While it was challenging to achieve growth in 2023, the French market experienced the least noticeable decline. We recorded a decrease of 5-6%, the lowest among the countries where we operate.
However, the second market outside Germany where we recorded a significant decline was Great Britain. Volumes decreased here even more than in Germany, by 20%, likely a consequence of Brexit.
Overall, Germany, the UK, and Spain were the three markets most adversely affected by volume declines.
Regarding Great Britain, phytosanitary controls at border crossings on the British side are set to come into force this year. Could this lead to a further decline in volumes?
Yes, these regulations are expected to take effect this year. The impact on transport efficiency will likely be felt, but predicting the effect on volumes is challenging, especially given the unpredictable nature of the British market.
You also mentioned declines in the Spanish field. What did these involve?
Possibly linked to a trend observed in long-distance transport, where destinations like Spain, Great Britain, and Italy are witnessing a shift towards rail transport. Despite being slightly more expensive, there is increasing interest from our customers in transferring long-distance loads to intermodal transport, driven by ecological and capacity considerations.
Did you observe any other noteworthy developments in 2023?
As mentioned earlier, the most significant aspect last year was the pronounced drop in volumes, particularly from the second quarter onwards, with a drastic decline starting in March. This was followed by a decrease in prices, a consequence of the market situation and fuel prices.
Another critical development was the introduction of new road tolls in Germany, exceeding the previous rates by over 80%. These toll increases will undoubtedly have repercussions for the transport industry in the months ahead.
Another substantial issue is the financial troubles faced by many carriers. As 90 percent of our business relies on cooperation with subcontractors, we have already begun to observe the initial signs of financial difficulties among our partners. Approximately 15-20 percent of carriers’ fleets were immobilized by their decision, forcing carriers to make substantial efforts to address leasing, sell vehicles, or reduce transport resources.
There is currently an oversupply of drivers, mainly from Poland and less from Ukraine. Polish drivers are increasingly reluctant to adhere to the previous model of extended periods abroad, while Ukrainian drivers are still more accepting. However, the sustainability of this situation remains uncertain. The new drivers entering the market do not fully meet the requirements of current times and carriers. Weekly or biweekly transport is no longer economically viable from the carriers’ perspective, rendering simple round trips and weekly driving unprofitable at current rates.
What did volume changes look like by industry? Were there any segments that withstood the market-wide declines?
The e-commerce sector has undoubtedly maintained its volumes, experiencing fewer disruptions compared to those selling through standard channels.
What surprised us was the resilience of the automotive industry to significant declines. While volumes were lower, they remained more stable compared to other sectors. On the other hand, the paper industry, household appliances, and the furniture industry experienced declines reaching 40-50 percent. It’s evident that consumers have become more cautious in spending money.
We discussed Germany, which is crucial for Polish transport. It is also our country’s most important trading partner. 2023 was a challenging year for the German economy, and the forecasts are not optimistic. Similarly, German entrepreneurs share a subdued mood. All indicators give reasons for concern. How do you assess the prospects for Germany?
The reports present the situation objectively. While statistics can be interpreted differently, certain indicators are challenging to dispute. Germany is likely the most crisis-ridden country in Europe. Its heavy reliance on raw materials from Russia, now cut off, has led to a sharp slowdown, akin to a disruption in the gears of a well-functioning mechanism. Conversations with German colleagues reveal heightened pessimism, with surprise at the unfolding events.
Factors contributing to Germany’s challenges include a nearly 20% increase in the minimum wage, mirroring the situation in Poland. There is a strong emphasis on ecological and social issues, coupled with rising costs, especially for raw materials and energy. Furthermore, a noticeable problem exists with the labor force, encompassing both cheap and more skilled workers.
Over the past two years, Germany, once perceived as technologically and industrially advanced, appears to be facing challenges, particularly evident in its automotive industry’s struggles with the transition to e-automotive. It lacks competitiveness compared to other European manufacturers, let alone those outside our continent.
Hence, I approach predictions of an improvement in Germany’s situation in the coming year with caution. Moreover, there’s a sense that Germany may begin to lose its role as the driving force of Europe. This situation presents an opportunity for Poland, but it also poses a threat.
Continuing the discussion about Germany, in December, there was a substantial increase in road tolls in the country. How did this impact your operations, and what effects do you anticipate on the market?
We have been preparing for this toll increase for almost half a year, especially in terms of client cooperation. We anticipate a cost increase of about 4-6%, depending on whether we transit through Germany or transport to nearby or distant destinations.
I must acknowledge that our clients have understood this reality, with practically the vast majority of them fully or largely accepting this increase. Additionally, we are compensating carriers for the costs associated with the increased MAUT toll by 100%. We maintain a fair and transparent approach with our business partners.
However, I’ve received signals from various companies suggesting that some customers are resisting reimbursing carriers. Nevertheless, I hope this represents a minority in the Polish market.
In a few months, as contracts are renewed and signed, will the MAUT fee be factored into the rates, leading to an increase?
It’s challenging to predict. Most contracts are annual, and as we enter the tender season in March, the impact of MAUT may be neutralized to some extent by new tenders. While not a 100% offset, the oversupply of transport means has led to carriers and forwarders offering services below the economic calculation, at least for a while.
Customers are likely to take advantage of this situation, even if they had to reimburse the 6% cost increase. By March, when announcing tenders, they might receive offers with prices that already incorporate the new MAUT, and these prices may be lower than the current rates when factoring in the German MAUT.
However, considering that many carriers are currently facing financial challenges, if the prices discussed are not sufficiently higher, it could deepen the financial problems of numerous transport companies.
That’s a valid point. The Polish transport market is highly fragmented, consisting mainly of several dozen small companies and several hundred thousand trucks. These companies have financial obligations, such as leasing, often with three-year terms. Conversely, leasing companies and truck sellers have inventories of vehicles and may be less inclined to terminate leases.
If a carrier wishes to exit, they may face substantial exit fees. If the crisis persists for 2-3 years without significant changes in 2024, small carriers may not survive. They may either choose not to acquire new equipment after the current lease expires or face bankruptcy, potentially leading to a shortage of vehicles. Consequently, supply and demand would start to equalize.
So prices might skyrocket?
Precisely. That’s why our forecasts for this year do not assume a significant increase in prices with customers. While we have certain assumptions, we do not anticipate a rapid increase in turnover.
I often hear statements from industry colleagues and experts suggesting that the second half of the year might bring a rebound. While I’d like to be pleasantly surprised, I don’t foresee such a development because there are currently no grounds for it. Moreover, we might face unpleasant surprises in the second half of the year.
That brings us to the question I was about to ask – what are your expectations for 2024? Based on your previous statement, it seems you are not optimistic.
No, definitely not. We formulate our business development strategy with a straightforward approach – we do not assume an increase in volumes. While the market might bring it, our growth will hinge on acquiring new customers and commercial development.
What transpired in 2022 should be regarded as an anomaly. As our colleagues from the Czech Republic say, “to se ne vrati” – it won’t return. We won’t achieve the peak reached in 2022 in 2024 or 2025.
If we don’t anticipate larger volumes, it’s unlikely that prices will see a substantial increase. Hence, so I suppose can we expect either the same level of revenues or an increase achieved by acquiring new customers?
Exactly. While we have certain assumptions for the coming year, anticipating an 7-8% increase in turnover, 80% of this is based on two factors.
Firstly, the natural impact of MAUT. Secondly, the development of our business and acquiring new Polish customers. For example, we are diversifying into areas related to warehousing, intermodal transport, or LTL (partial truckload transport).
This reflects a broader trend where many Polish transport companies are expanding their service portfolios and entering high-margin segments beyond traditional transport activities.
Transportation is a fundamental service that will always be our core business. However, in the current business environment, we must seek new avenues for expansion. As an international organization, we possess extensive know-how, which we aim to transfer to Poland. Relying solely on international transport, especially full truckload transport, is currently a risky venture. If I were a shareholder, I would be hesitant to invest in a large transport company today.
Speaking of trends, in 2023, we noticed a significant focus on the digitisation of transport processes. We heavily rely on e-CRM, for instance, as working with paper documents leads to delays in many processes. Real-time visibility is becoming increasingly critical.
While visibility in LTL transport is high, it has lagged in full truckload transport. Today, virtually every tender organized for major brands requires visibility. Therefore, a competitive advantage will revolve around this functionality. It’s crucial for us, but it’s undeniable that smaller carriers and forwarding companies may struggle to move in this direction due to resource constraints.
When discussing resource constraints, it’s challenging not to address human resources, specifically the ongoing shortage of drivers that the market has grappled with for years. Currently, due to low demand, the lack of truckers is not as strongly felt, but the problem hasn’t vanished – it’s merely on hold. I recall from our last conversation that you were recruiting in Nepal. Has that concluded? What’s the current status regarding the recruitment of foreign drivers in your country?
We have partially executed the plan for 2023. We would have fully implemented it if not for the corruption scandal related to visas in Polish embassies, as we all know.
We have partially implemented the plan for 2023. We would have fully executed it if it hadn’t been thwarted by the corruption scandal related to visas in Polish embassies, as we are all aware. Currently, we have 15 drivers from Nepal who have been imported, employed, trained, and put behind the wheel.
These individuals are driving, and we are very pleased to be working with them. Unfortunately, another 45 drivers from the second tranche, whom we intended to bring to Poland, were blocked at the embassy level, for the reasons mentioned earlier.
Therefore, I hope that the new authorities will promptly resolve this situation and unblock this channel, enabling us to continue importing drivers from Nepal. This is a positive direction for carriers, as employees from there are prepared to work for 3-4 weeks without returning to the base.
I am a strong advocate of bringing these individuals to work for us, as there is a scarcity of such drivers in Poland and Europe. In a few years, we may face a situation where there will be a shortage of truck drivers, and the problem will persist until autonomous trucks become prevalent. However, this transition will likely take some time.
Returning to the forecasts for this year, do you expect the situation to improve significantly in any of the markets?
The most interesting and promising markets are the former post-communist countries – Poland, the Czech Republic, Slovakia, Romania, and Serbia, which serves as a bridge connecting Western Europe with Russia. We observe a considerable amount of investment, particularly from Polish companies, in this region. However, I don’t anticipate substantial improvements in Western Europe.