Insights into the German Road Freight Market

Despite being known as a growth driver in Europe, German consumer demand is often mediocre with the economy disproportionately dependent on exports of automotive products in particular.

Europe’s largest economy is often perceived as a growth driver across Europe. In reality, German consumer demand is often mediocre with the economy disproportionately dependent on exports of automotive products in particular. Although this is not unique in Europe, the situation is particularly marked in Germany.

This has a strong impact on the nature of demand for services such as road freight, with the past seeing a disproportionate reliance on industrial sectors. This may be changing.

If we look at the below graph from the German Statistical Office it can be seen that:

  • Retail trade in gross terms has recovered
  • Trade volumes are more volatile
  • Spending is far from uniform across sub-sectors of the retail sector
  • The numbers are influenced by supply issues.

Turnover in Retail Trade at Constant (real) Prices in Germany 2021 (2015=100)

However, the demand situation is more complex than usual due to the extreme variations in demand and indeed supply, in different parts of the economy.

One of the salient areas of depressed demand is the automotive sector. It has seen wild swings in production volumes, driven both by demand but also by shortages in the supply of components. For example, production was down 19% year-on-year for June 2021, with June 2020 also being 19% lower. April 2020 had seen a 97% fall in volume. This will be having a very substantial impact on the road freight sector as, in Germany especially, the automotive sector is a major customer for the road freight services. Indeed, such has been the violence of volatility, that it is likely to have had an impact on the nature of the supply side, driving some LSPs either out of business or to shift capacity to other sectors.

In contrast, the e-retail market has been buoyant, with logistics providers in the sector seeing double-digit percentage increases, between 15-20% Y-o-Y for the sector. The impact of this has been a dramatic spike in demand for e-retail related logistics services notably in last-mile delivery. The effect on other parts of road freight has been less extreme but still noticeable.

Yet despite the very different economic conditions of the past year, export demand has remained a disproportionate part of the economy. The picture has been volatile, with swings in the volume of trade as COVID-19 policies around the world impacted the ability to import and export. However, by June 2021 export volumes were 23.6% higher Y-o-Y, whilst imports were 27% higher. The implications for logistics infrastructure such as container ports are quite clear and activity has been strong in these locations.

German Exports to non-Euro Economies

The situation of the German labour market is quite similar, characterised by volatility, extraordinary conditions and higher demand. Overall, the level of unemployment has probably risen over the short-term. However, much of this is due to many operations being physically prevented from working, notably in the retail and related sectors. This form of forced idleness has artificially driven up the unemployment level. However, the inverse is also the case, with certain ‘over-stimulated’ sectors seeing labour-supply tightening, notably in the areas such as e-retail. Here we see ‘shortages’, which in truth may be really ‘friction’ as labour attempts to shift from one sector to another.

German Exports to non-EU Countries (€bn)

Therefore, the ‘top-line’ unemployment rate ought to be treated with some caution. As the regulations change the numbers will change, possibly quite violently. The clear assumption outside Germany is that wage rates will increase as a reflection of wider inflationary forces in the economy. However, it would be wise, not so much to assume that this is entirely wrong but to assume a sceptical stance towards it. It is possible that as monetary policy or trade conditions change labour released from other sectors of the economy could enter areas such as road freight and alleviate wage inflation.

Unemployment in the EU – Seasonally adjusted % July 2021

The support for this is increased by looking at structural change in certain parts of the German economy. Sectors such as conventional retailing or automotive assembly which account for disproportionately large volumes of labour in the German economy are violently restructuring with the almost inevitable result that many will lose their jobs. The time horizon for this is probably a medium-term one of five years, nonetheless, it is very likely to happen. However, in the case of Germany, this has to be combined with significant headwinds in terms of shrinkage in the size of the labour force combined with ‘regulations’ imposed at the EU level that have sought to obstruct migrant labour from Eastern Europe and the Balkans. The latter does offer considerable opportunities to loosen labour supply, but it is policy dependent.

The supply-side in Germany is reasonably dynamic, which cannot be said for all domestic sectors in Germany. This suggests that the road freight sector may well be able to respond to the need for higher productivity in response to higher labour costs. There is a reasonable mix of large and medium-sized LSPs specialising in road-freight, sufficient to drive market change. There is also a reasonable number of new entrant ‘technology’ based providers. This may provide a significant opportunity. However, a big proviso in Germany is the supply of capital. Traditionally dependent on bank financing of privately owned medium-sized companies, existing capital structures may not have the resources to drive forward productivity in road freight segments that are capital intensive.

Source: Transport Intelligence, September 23, 2021

Author: Thomas Cullen

This brief has been taken from a larger paper, ‘Macroeconomics and the European Road Freight Market by Thomas Cullen at Ti. This paper is available exclusively to GSCi subscribers. Each week, Ti’s team of senior analysts and industry experts deliver analysis covering the latest logistics and supply chain trends exclusively to users of GSCi.