Growth slows in the European road freight market


Real growth (holding price and exchange rates constant) in the European road freight market slowed to 2.4% in 2016. However, it is expected to bounce back in 2017, according to a new report from Ti.

The road freight market remains a fragmented and competitive space where providers face a tough battle to increase volumes and market share.

Its growth pattern resembles that of the European economy as a whole, which has typically seen low single-digit growth since the global crash. According to the EU’s Spring 2017 European Economic Forecast, GDP growth fell in 2016 and is expected to remain flat into 2017. More recently though, the IMF’s October 2017 World Economic Outlook report produced a more promising forecast for 2017 and beyond.

In domestic markets, which make up over 70% of the total market, private consumption and domestic demand are key factors driving road freight growth. The labour market is tightening and this has boosted consumer confidence and increased spending. In the three largest markets (France, Germany and the UK), domestic demand growth was higher in 2016 than in 2015. It was flat for the EU as a whole though. Looking forward, higher inflation could derail consumer confidence and dampen overall consumer spending.

As with the economy, pricing also played an interesting part in shaping the road freight market in 2016. For the first time since at least 2010, real growth exceeded nominal growth. This means that price pressures were negative overall and it pushed down the top line figures of major providers. On DB Schenker’s operations, Deutsche Bahn’s annual report stated that “continuing fierce competition and much lower diesel prices… meant that the increased volume was only partially reflected by revenue growth.” The price weakness to which it refers to was seen in both domestic and international markets.

On the international side, 2016 was a better year for volumes than in 2015. This was recognised by other major providers such as DHL who said the market grew “after being virtually stagnant in the prior year”.

As has been the case in the global economy for many years, trade growth is stronger than domestic demand. Although simplistic, it is this ‘law’ that stipulates that international road freight volumes grow by more than domestic volumes.

Therefore, import and export growth are interesting metrics to consider. According to Eurostat, around two thirds of EU trade is intra-EU. Around 75% of inland freight within the EU is transported by road.

IMF data suggests a substantial drop in trade volume growth in the euro area from 2015 to 2016, but then a pick-up in 2017. For emerging and developing Europe, virtually the opposite is true. Both are important to the overall market, but it is Central and Eastern European markets where road freight market growth is strongest.

Road freight providers can’t rely on overall market volume growth to keep their businesses strong. Increases remain in the low single digits and are set to do so for the foreseeable future. The strategies of the market leaders appear to focus on service diversification, enhancing sector-specific offerings, developing their networks and investing in new technology.  Above all, what remains clear is that there are no easy routes to success in European road freight.   

Author: Andy Ralls

Source: Transport Intelligence

Date: October 17, 2017

 

If you’d like to learn more about the state of the European road freight market in 2017, including sections on country-level market sizing data, market fundamentals, technology, EU policy and cargo crime, please click here.

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