Following the pandemic and Russia’s invasion of Ukraine, Europe’s transport and logistics industry has entered a new phase. Nearly all travel restrictions have been lifted since the beginning of 2023, although consumer demand hasn’t fully risen due to a weak overall economy.
Based on how carriers are utilising their fleets, the capacity index for the European Road Transport in January 2023 is up 4.1% to last month (December 2022) and 20% year-on-year, according to Transporeon. The capacity index stood at 105.51 in January 2023, the highest point since January 2021.
The capacity index provides insights into truck availability in Europe. Although demand naturally drives production, the truckload market is cyclical and goes through different parts of the cycle. For example, the economy incentivises carriers to invest in fleet expansions until, at some point, this creates overcapacity.
European Road Freight: Capacity Index (Monthly)
Source: Transporeon
Given the evolution of supply and demand for freight and cargo space in the European transportation market, the fourth quarter of 2022 represents a tipping point. A seasonal high in freight supply followed by a decline is not rare. But, contrary to seasonal tendencies in recent years, a steady increase in capacity is visible from May 2022 until January 2023.
Transporeon’s spot index fell 8.6 points month-over-month, down to 108.48 points, while the contract index rose 0.1 points month-over-month. This now puts spot rates down 11% year-on-year and contract rates up 10% year-on-year.
Low peak season demand due to inflation lowering consumer confidence is causing increased capacity and a decline in European spot rates. However, according to Eurostat, European consumer confidence slightly improved to minus 20.9 in January from negative 22.2 in December, although inflation is still high at 8.5% in January 2023.
This untypical scenario experienced in the last quarter of 2022 is mainly due to lower market volumes. As reported by Eurostat, economic growth was weakening, and industrial production in the European area was down by 1.1% in December 2022 compared to the previous month and dropped 1.7% year-on-year.
Due to a historically high gas and power rates, several businesses were compelled to halt or scale back their European production. There are also significant sectoral differences ranging from sharp contractions in energy-sensitive materials such as chemicals to solid growth in consumer goods such as pharmaceuticals and clothing.
However, the reopening of the economy in China is adding some demand-side compensation. As a result, manufacturers are now less pessimistic about the near future, as confirmed by Clemens Fuest, President of the Ifo – the German Institute for Economic Research, “The economy may still be shrinking a little in the first quarter, but given the improvement in expectations we’re seeing now from businesses, it is very unlikely we will have a technical recession.”
Automakers, in particular, now benefit from a more reliable supply of semiconductors and other electronic components, which enables them to eliminate large production backlogs.
The outlook for 2023 on road freight shows that freight rates will stay strong, and the rise of toll road charges, the increase in living costs and driver wages will probably cause freight rates to remain elevated. However, a fall in diesel cost should cause rates to contract.
Forecasts for 2023 reflect the general weakening of demand, weaker consumer confidence and high inflation across the entire European continent. As a result, demand pressure for road freight services from consumers and producers is falling. Nonetheless, we expect stagnation instead of the demand crash feared in 2022.
Considering the economic incertitude, it is difficult to make reliable forecasts for the years ahead, and the outlook for the European road freight market will depend on the outcome of various unpredictable factors.
Transporeon’s Capacity Index is available on GSCi – Ti’s online data platform. Supply chain strategists can use GSCi – Ti’s online data platform – to identify growth opportunities, support strategic decisions, help them stay abreast of industry trends and development, and understand future impacts on the industry.
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