What does the data tell us?
Eurostat HCIP data shows that the cost of operating vehicles is way above historic levels. When looking at Tyres, Maintenance + Repair, and Insurance, it is enough to show the scale of increases in cost over the previous 5 years. European Union Vehicle Maintenance and Repair costs are up 28.7% vs 5 years ago, Tyres are up 25.3%, and Insurance is up 12.8%. The vast proportion of this increase has been over the previous two years.
What has caused this increase?
Obviously, the simple answer is inflation. The cost of goods in Europe has increased significantly over the previous two years due to high energy prices, supply bottlenecks, and a growth of money supply as a result of the pandemic. As a result, the cost of goods like tyres and spares has increased, and this has in turn pushed up the cost of insurance as payouts are now more expensive.
Inflation has now declined, can we expect operation cost to follow the same trend?
Unfortunately, the answer isn’t so simple due to the lagged effects of inflation and even that the measures taken to reduce inflation are likely to increase other components. Firstly, Inflation has reduced the real income of European consumers, and with this will come wage increase demands as we all aim to claw back our lost wealth. This has the potential to further increase costs in labor-intensive areas of the cost base, the clearest example being driver wages, but it will also add further pressure to maintenance, repair, and back-office support.
Interest rate increases have been used as a monetary policy tool to reduce inflation around the world; this, however, will also increase the cost of covering vehicles in Europe. Especially on monthly insurance policies which have the additional burden of APR on top of the annual insurance cost.
How will this affect Logistics markets?
We have already seen that even during a low demand environment, some European road freight costs stayed elevated during 2023. Whilst spot markets have been reactive to low demand, contract rates have remained elevated due to these higher costs. We can now likely expect more of this, and the burden of logistics costs will remain high in 2024. Should demand for goods transport not pick up in the first half of the year, we can also expect margins in the market to remain very tight and profits of road freight companies to stay low.
How can I keep up to date with development of Demand, Supply, and Costs in European Road Freight?
Supply chain strategists can use GSCi – Ti’s online data platform – to identify opportunities for growth, support strategic decisions, help them stay abreast of industry trends and development, as well as understand future impacts on the industry.
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