The European road freight capacity index increased by 12.0% in August 2023 compared to August 2022, according to the latest data by Transporeon. The latest figure marks the 14th consecutive month of year-on-year increase. The data reflects the stagnating transport demand in the European road freight market. Available capacity in the European market has been on an upward path since May 2022. The increase in available capacity makes European road transport cheaper as it leads to increased competition between road freight operators.
As expected, the weakened demand development had a dampening effect on rates. High consumer prices and lagging wages are pushing down demand for the distribution of goods throughout Europe, resulting in further falls in freight rates on the spot market, which have been on a downward trend since November 2022. Spot rates have fallen by 16.0% in August 2023 compared to the year before. The decline in spot freight rates is also due to lower fuel prices.
Unlike spot rates, contract rates are still holding up. Contract rates have seen much smaller falls due to the elevated costs base and shipper sentiment suggesting that it is now a good time to lock in lower rates under contracts. Contract rates in August 2023 experienced a 3.6% drop compared to August 2022. The delayed fall we are seeing on the contract side probably has to do with the fact that rates take longer to materialise due to freight procurement cycles. As a result, we should expect further declines on the contract side in the months ahead.
Overall, it appears that in 2023, shippers are navigating a more favourable freight environment rising available capacity and falling contract and spot rates.
The rising available capacity leads to increased competition between road freight operators which in turn causes a drop in spot rates. The spot rate index has been below the contract rate index for three months now, signalling real volume decline.
The financial results of the European road freight companies reflect the volume decline in the market. For instance, DHL’s Forwarding Freight segment has continued to be badly hit due to decreased freight rates. Revenue for this segment in H1 2023 was down by 40.3% and EBIT was down by 41.8% for half-year year-on-year.
Similarly, DSV Road freight segment’s revenue in the first half of 2023 was down by 4.5% year-on-year, and EBIT was down by 2.8% year-on-year.
Overall, the road freight market continues to be characterized by a stagnating transport demand coupled with falling spot rates and increasing capacity. Decreasing real income, tight financial conditions, and soft external demand weigh heavily on the European Road Freight market in 2023. The EU Mobility Package has also led to uncertainties and rising costs among road freight operators. Growth over the next five years in European Road Freight market is forecast to be stronger according to Ti market size data, helped by a robust international road freight market, although outlook is still clouded by the war in Ukraine.
Transporeon’s capacity and freight rate data is available on GSCi – Ti’s online data platform. Supply chain strategists can use GSCi 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.