The analysis finds that costs for transport companies are not decreasing at all, and demand is slowly awakening with the first signs of the end of the economic slowdown. This is further overshadowed by toll increases in other countries.
In the first quarter of 2024, we witnessed a decline in both the spot and contract rates index, according to quarterly research conducted by IRU and Transport Intelligence. The spot rates index in Europe fell to 123.9 points, 1.1 points lower than in the previous quarter, and 8.2 points lower than in the same period of the previous year.
As for contract rates, the index was also lower in the first three months of the year than in previous periods, scoring 127.6 points, which was 2.6 points lower than in the last quarter of 2023 and 1 point lower than exactly a year earlier.
However, the latest IRU analysis emphasises that despite the ongoing declines, their pace has clearly slowed. This could indicate an improvement in market demand for transport services, suggesting that rates could normalise in the second half of the year, or even more so towards the end.
Analysts from IRU indicate that, according to McKinsey data, in March the inflation level in Europe was the lowest in 33 months, and the level of consumer sentiment finally increased after a long period of decline.
Although the situation in the largest eurozone economies – France and Germany – is still far from ideal, many eurozone countries are slowly starting to recover from the slowdown. The PMI index showing industrial activity is positive in Spain and the Netherlands. Also, in France and Germany, May brought a significant improvement in the index, signalling the awakening of the manufacturing sector in these countries.
Experts from Transport Intelligence forecast that in 2024 the volume in European road transport will increase slightly by 0.4% year on year. However, this is a significant improvement compared to the decline of 1.1% in 2023. This slight rebound is expected to be a consequence of a decline in inflation, an increase in real earnings, as well as the previously mentioned rebound in consumer sentiment and activity.
More consumption means more demand for goods, which in turn drives demand for transportation services. This naturally leads to an increase in rates.
Calendar of price increases
The second factor that should push rates up is the increase in tolls in other countries due to the inclusion of additional environmental fees in these road tolls. Last December, a series of EU price increases began in Germany. As a result of adding the “tax” on emissions, road tolls in this country increased by over 80%. Environmental fees were also added to tolls in Austria, the Czech Republic, and Hungary. This did not result in such drastic increases as in Germany, but road transport in these countries is more expensive.
In Hungary, road tolls increased by 7%, in the Czech Republic by 13%, and around Lake Balaton by 40%.
“Road toll increases constitute an additional financial burden on carriers who already have to cope with high operating costs, which affects overall freight rates,” write IRU experts.
In May, Sweden included environmental fees in its tolls. Denmark will follow next year. In 2026, the Netherlands and Romania will join these countries, and in 2028, Belgium. Polish carriers operating on international routes will certainly experience price increases in the Benelux countries. Our truckers have a significant share in transport from ports in this region. In addition, they have significant shares in cross-trade transport between Germany and France, and Belgium and the Netherlands.
Costs refuse to decrease
It is also important to mention the still very high operating costs. Despite low demand, these costs had a dampening effect on the decline in rates. Now, as demand slowly awakens, costs will add fuel to price increases for transport services.
This is especially true because the costs of running a business in Europe are not decreasing. Fuel prices, which were expected to fall in 2023, started to rise again this year. In Europe at the end of Q1, the average retail price was 3% higher than at the beginning of the year. As fuel accounts for approximately 50% of carrier costs, it can be expected that the pressure to increase spot rates will grow in the coming quarters.
While spot rates should end their declines and stabilise in the coming quarters, contract rates may experience slight declines. This would result from the relatively low level of demand anticipated for the next year. Analysts assume that shippers will not feel the need to reserve high volumes for the next quarters.