2019 has so far proved to be a turbulent year for the global economy and Europe’s vulnerability to such difficulties are very apparent.
With such deeply connected intra-continental supply chains, the effects of a global slowdown in economic growth are not confined to one or two countries, but to the whole region. The results of this are therefore shining through in the growth rate of its road freight market, which is responsible for over three quarters of inland freight transport.
Softer global trading conditions have led to a sharp slowdown in the German economy. With slowing demand for its manufactured goods, the country sits on the verge of a recession. For road freight, this slowdown has resulted in lower shipment volumes. The effects have been felt not just in Germany, but across the region and particularly in its neighbours in Central and Eastern Europe. These have been vital low-cost manufacturing bases of components needed for German finished good exports. As a result of the slowdown, their international road freight markets are showing much subdued growth rates.
Unsurprisingly Brexit has played a significant role in Europe’s growth story this year too. The uncertainty has continued to dampen investment growth in the UK. Decisions on capital expenditure for plant & machinery for example have been delayed, depressing the demand for trucks to carry not just finished products, but also raw materials and intermediate goods.
It has also led to short term volatility in demand. The original March 31 deadline for the UK’s exit from the trade bloc led to increased levels of stockpiling on both sides of the English Channel. Shippers rushed to fill warehouses in the fear that trade barriers erected after that deadline could result in chaotic trading conditions. This led to a subsequent bounce for road freight volumes in March and subsequent drop in April. Commenting on Waberer’s Q2 performance, in which revenues fell 6.4% year-on-year, CEO Robert Zeigler confirmed “April was hit by a combination of market forces and internal issues. The whole industry was severely impacted by the aftermath of the end-March Brexit date, when demand for transportation services inbound to the United Kingdom dropped dramatically as warehouses had previously been filled preparing for a disorderly Brexit.”
As October 31 approaches, signs of a similar trends are surfacing. The more asset-light carriers with the ability to scale up and down quickly in reaction this volatility could benefit ahead of asset-heavy counterparts.
The cost base for road freight operators appears to be rising, putting upwards pressure on road freight prices. Diesel prices have increased, whilst labour costs are on the up, which appears can at least in part be attributed to driver shortages. These additional cost increases appear to be too much for carriers to swallow. Martin Leopold, CSO DHL Freight, explained why the company would be implementing a 4% peak season surcharge from September to December 2019: “The shortage of drivers and constantly increasing road freight demand are further constraining the available capacity. We therefore expect capacity challenges similar to 2018. We have and will secure additional capacities for our customers. However, to ensure the high level of service quality and reliability our customers expect, we have to add a peak season surcharge of average 4%.”
The European road freight market grew 1.2% year-over-year in real terms in H1 2019. In spite of the global challenges previously mentioned, it appears that consumer demand is providing some stimulus. Gradually rising real wage growth and employment levels have kept consumer spending relatively robust. In the first half of the year, retail sales volume growth in the EU was 2.8% year-on-year according to the OECD. This compares with a weak manufacturing sector, which contracted by 0.2%. The European Commission’s Summer 2019 (Interim) Forecast states “the labour market remains the bright spot in the euro area outlook. But here too the outlook is increasingly challenged by the protracted weakness in manufacturing and external demand, which may eventually spill over to services and dampen job creation, wage growth and private consumption.” In this eventuality, any stimulus for road freight volume growth could be lost.
Source: Transport Intelligence, October 8, 2019
Author: Andy Ralls
Ti will shortly be releasing Mid-year Market Sizing updates for European road freight as well as for the global contract logistics, freight forwarding and express & small parcels markets. This will include H1 growth rates and revised projections for the full year 2019 for major global economies.
To find out more, contact Ti’s Head of Commercial Development, Michael Clover via email: [email protected] or by calling +44 (0) 1666 519907. For more information on Ti’s analysis of the European Road Freight Transport market, please visit our report page.