The European road freight capacity index increased by 8.8% in October 2023 compared to October 2022, according to the latest data by Transporeon. The latest figure marks the 16th consecutive month of year-on-year increase. Compared to September 2023, the capacity index has increased by 2.7% in October 2023. The increase in available capacity makes European road transport cheaper as it leads to increased competition between road freight operators.
The rate of decline in the spot market has slowed due to abated inflation. In September 2023, the spot rate fell 14.2% in comparison to September 2022, and compared to October 2022, spot rates fell to 10.2%. The cause is smaller falls in the demand for goods, thus , suggesting some spot prices may begin to normalize.
Contract rates have been kept high by an elevated cost base, and cost increases continue to push rates up. Contract prices are less exposed to changes in short-term demand. Contract rates in October 2023 experienced a 2.8% drop compared to October 2022. The delayed fall on the contract side probably also has to do with the fact that rates take longer to materialise due to freight procurement cycles. However, should the European economy continue to stagnate at activity levels below previous years, Ti expects this to add downward pressure to contract rates as renewal volumes decline.
According to an article published by Ti, Upply and IRU, the short-term demand-side pressure on road freight continues to fall in Europe, and in general, the consumers who are now poorer in real terms are consuming fewer goods, while businesses reduce their output in the face of declining demand. Available Q3 2023 Eurostat data shows no quarter-on-quarter change in European retail trade but a 3.6-point fall in manufacturing. As a result, total demand-side pressure for road freight continues to fall, freeing up capacity, and allowing rates to slide further.
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 nine months now, signalling real volume decline.
The financial results of the European road freight companies reflect the volume decline in the market. Kuehne + Nagel commented that their road freight networks had suffered from “underutilisation” over the period.
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 outlook for European rates is reduced volatility as European demand stagnates at lower levels than in previous years. In the short term, cost increases and especially the toll price increases in Central Europe are likely to push rates up in Q4 2023 and Q1 2024, before demand begins to recover in the second half of 2024.
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.