The recent ‘State of the Union Road Transport Market’ shines a light on the the state of the road freight market.
The report confirms that road freight is the most important mode of freight transport across Europe, accounting for 72% of movements measured in terms of tonnes/kilometres. Of this 67% of road freight is domestic traffic. Cabotage remains just 1% of road freight, yet the EU report describes it as having grown by 80% between 2004 and 2012, a growth due in part to the reduction of restrictions on the trade in 2004.
It is hardly news that the road freight sector is highly fragmented. The average trucking company employs four people whilst 99% employ less than 50, although the EU says that forwarders and integrators are playing a greater role in the sector it does not quantify this.
What is slightly more surprising is that road freight has such a weak record in terms of productivity. Labour productivity is lower than in most other parts of the economy, with domestic transport in particular seeing out-put per head 15% lower. Remarkably labour productivity is actually falling, with the period 2001-10 seeing an average fall of 0.2% per annum. The utilisation of vehicles is also less than perfect with domestic transport having 25% of journeys performed by empty trucks. The situation for empty running is even worse for cabotage operations, possibly due to the effects regulations on the ease of doing business.
The attractiveness of cabotage is evident in the light of variability of the cost base of road hauliers. For example the cost of driver accounts for around 50% of the overall cost of running a truck in Germany, Denmark or the Netherlands. In Poland the cost of the driver is 20% of total cost. Therefore the biggest markets for cabotage are France and Germany, whilst the largest source of trucks on cabotage work is from Poland.
Potentially accessing lower cost labour from central Europe could offer significant reductions is the cost of road freight for shippers in Western Europe and possibly drive-down wage rates for drivers in such economies. However, this has to be balanced against the general shortage of drivers, with the workforce ageing rapidly and an apparent reluctance of many to enter the occupation due to its poor working conditions.
The EU report asserts that the biggest opportunity for improving the efficiency of the road freight sector is liberalising its regulatory environment. The obstacles to this are, however, substantial with nations such as France already lobbying against any extension of cabotage. What the report is less strong on is quantifying the effects of both third party logistics companies on this market and of technology. The latter in particular offers the potential to transform the sector particularly in terms of driver productivity; yet at present it is hard to estimate.
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)