Relative to the 3rd quarter of 2023, the report’s spot rates index decreased by 4.5 points, while the contract rates index increased by 1.7 points at the same time. The latter came about as a result of the increase in German tolls.
At the end of the fourth quarter, the European spot rates index amounted to 123.8 points. In the third quarter, the quarter-to-quarter decline was 1.2 points, while in Q4, it was 4.5. Spot rates have been falling significantly for several quarters – their level at the end of 2023 was as much as 14.8 points lower year-on-year.
This situation is a result of low demand in Europe for transport services. Analysts from TI pointed out that due to the low level of consumption, which dragged rates down from the end of 2022, in the last months of 2023, there was also a low level of industrial production. Both of these factors negatively affect the demand for transport.
According to the data cited by TI, industrial production in the fourth quarter of 2023 decreased in Great Britain (by 0.9%), in Germany (by 1.6%), and minimally in France (by 0.2%). Increases were recorded in Poland and Spain, albeit they were negligible (by 0.4% and 0.7% respectively).
Contract rates up
In turn, the contract rates index increased for the second quarter in a row (by 1.7 points quarter to quarter) and reached 129.4 points.
However, this is only 0.9 points more year-on-year. For contract rates, the growth is determined by the high fixed and operating costs of carriers on the European continent. Although the increase in fuel prices has subsided in 2023, diesel cost on average 10% more at the end of the year than before the outbreak of the war in Ukraine.
Additionally, operators’ fixed costs increased due to the higher road tolls in Germany in December 2023. The rise was a remarkable 83%. This is despite that the new tolls rates were only in force from the beginning of December. This effectively increased contract indexes on routes from Germany, which we’ll touch on later.
Over the last three years, on average in Europe, labour costs in transport have increased by 28%, repair and service costs by 20%, tyres by over 21%, spare parts by 13.5%, and insurance by 8.7%. All this has put pressure on contract prices.
German road toll hikes felt in Poland
On the route between Poland and Germany, rates pretty much fell across the board.
The contract rate for transport to Duisburg, in the last quarter of 2023, was EUR 1,427 (EUR 1.32/km). This is 4.4% less than the previous quarter and 14.2% less year-on-year.
Meanwhile, on the spot market, transports to Germany cost on average EUR 1,566/km (EUR 1.45/km) – 1.4% less than in the previous quarter and 13.7% less than in Q4 2022.
Spot rates on the return route to Warsaw also dropped. On average, the route from Duisburg cost €1,265 (€1.17/km). That’s 5.7% less than in the third quarter of 2023 and by 17.8% less year-on-year.
However, the first consequences of the road toll increase introduced in December are already visible. In Q4 2023, the contract rate to Warsaw increased for the first time in over a year. It amounted to EUR 1,183 (EUR 1.09/km) – increasing by 2.3% compared to the previous quarter. However, it is still below the level at the end of 2022 (by 4.3%).
The main factor that affects rates on the route between Poland and Germany is, above all, the difficult economic situation in Germany. Retail sales in Q4 2023 declined year-on-year. Additionally, there is falling industrial production and new orders in the industry.
Moreover, year-on-year declines, and the low level of optimism among German entrepreneurs and consumers, not only affect spot rates, but also contract rates.
Carriers see that the negative trend is long-term. Low demand in the direction Germany even offsets the increase in costs caused by the increase in road tolls.
In turn, a slightly healthier level of demand from the Polish side, together with a better condition of the Polish economy, meant that the increase in these costs was translated into rates, and hence the increase in contract prices in the direction of Poland.
What about France-Germany transports?
The effect of higher German tolls was also visible on another important route from Germany – to France.
On the direction to Lille, the contract rate increased by 10.2% quarterly to EUR 756 (EUR 2.5/km). However, this is still 2.9% less than in Q4 2022. The spot rate in this direction amounted to EUR 719 (EUR 2.38/km) – lower both quarterly (by 2.2%) and annually (by 17%).
It is worth emphasising that the contract rate to France was higher than the spot rate for the first time since the index has been quoted (the 1st quarter of 2017).
On the return route to Germany, an increase in contract rates was also recorded – by 2.2% quarterly to EUR 497 (EUR 1.65/km).
On an annual basis, this is 6.4% less. The decline in spot transport prices has slowed down, amounting to only 0.3% quarterly. The rate of 531 euros (1.76 euros/km) was still about 3.2% lower than in Q4 2022.
Apart from the increase in tolls in Germany, a factor that pushed up contract rates between Germany and France was the positive condition of the automotive industry. While industry in Germany, and to a lesser extent in France, is experiencing a crisis, the automotive sector could count 2023 as a very successful year. Especially after the collapse of the pandemic years. Sales of French cars in the fourth quarter of 2023 increased by 12% year-on-year, with production up by 5.9%.
The German automotive sector is also doing not too badly, especially against the background of the barely breathing industry – production increased by 1.7% year-on-year. As much as 40% of car production plants in Europe are located in Germany and France. For now, the condition of this sector raises the stakes between Europe’s two largest economies.
Germany-Austria and domestic rates in Germany
The effect of the German toll increase was also visible on the route with Austria. The contract rates on the route from Duisburg to Vienna was 10.6% more expensive compared to the previous quarter (EUR 1,582). The spot rate to Vienna, as well as both spot and contract, to Duisburg, were down on the previous quarter.
It is worth adding that TI analysts also took a look at domestic rates in Germany to see the effect of the increases introduced in September. It was instant.
In December 2023, contract prices increased by the most in 15 months – by 8.3 points month to month. For comparison, the spot index increased by only 1.9 points in this period.
Waiting for demand to rebound
TI analysts forecast that an increase in contract rates should be expected on routes to and from Germany in 2024, primarily due to the higher level of road tolls. On export routes from Germany, you can already see that the rates exceed the spot ones.
On the spot market, carriers are facing hard times. High demand puts them under pressure with rising costs (besides the road tolls). This will lead to further declines in already low margins. In the long run, higher rates regardless of demand will have to become the norm. Otherwise, many carriers will not survive.
“We will see increases in rates, but they will not be very large because after all, the demand is low,” warns Thomas Larrieu, CEO at Upply.
He adds that this year is unlikely to bring a dynamic increase in demand. If this happens, it will be most likely in the last quarter of the year.
Nathan Donaldson, an analyst at Transport Intelligence, says something similar.
“We do not expect further significant declines in rates, but we also do not expect significant increases,” he says.