Why is road freight recovery weak?

The European Road Freight Transport 2023 Report was published in May of this year. In this podcast interview, Ti Insight’s Research Manager Viki Keckarovska, discusses the report’s findings, current market performance and what’s in store for the industry.

Kirsty Adams (KA): What are the most important points to come out of this report?

Viki Keckarovska (VK): The most important finding is that growth in the market has slowed down significantly. The market moderation we’ve seen in the second half of 2022 has spilled over into 2023, and as a result, the European road freight market is projected to lose speed this year and expand by only 1.4% in real terms.

It’s mainly the war in Ukraine that acted as a major setback to the recovery of the European economy, causing a slowdown in the road rate market. Also, our data shows that the market will continue to experience this weak growth in the next five years and will be characterised by declining activity.

Obviously this declining activity in the market is having a huge impact on freight rates. With volumes dropping and available truck capacity increasing, we expect that the downward trend in freight rates will continue in 2023. The current market conditions are also putting enormous pressure on road freight operators, especially smaller road freight companies, which have started experiencing financial difficulties due to the rising operational costs and defaulting freight rates. As a result of this, some are being acquired by large road freight operators.

If you prefer, you can listen to the full interview with Viki below, or on your podcast platform of choice.

KA: Were there any surprises?

VK: I think the market dynamics in the digital forwarding market have changed significantly. During the pandemic and especially after the re-opening of economies, most of the digital forwarders had a lot of stuff as they were planning for a different economic reality. But then the volumes did not materialize.

Consumer demand moderated in early 2022. As a result of this, most of the digital forwarders started reducing staff levels. There are two reasons for this. As I said, one of them is the over hiring to keep up with rising demand, but another reason is the tougher investment environment.

What we are seeing is a shift in the venture capital landscape and investors being more cautious and slowing down the deployment of capital in digital forwarders. One of the implications of this is that digital forwarders have had to re-evaluate their growth strategy, with their strategies now becoming more targeted towards profitable growth.

To achieve this, digital forwarders will have to optimise their resource allocation. Reduced staff levels are a key element of this cost optimisation process; therefore we should expect more staff reductions in the coming months.

KA: Can you share some insight from the sustainability strategies of the top 20 European road freight providers?

VK: The European Road Freight Report compares the sustainability initiatives of the top 20 road freight companies and compares the progress they’ve made in reducing emissions over the past five years. The comparison shows that some of these companies demonstrate ambitious targets for the next five to 10 years.

However, only five out of top 20 companies have set carbon neutrality target dates. DB Schenker and FedEx are some of the most ambitious road rate companies when it comes to achieving carbon neutrality. They have committed to becoming carbon neutral by 2040. And to reach this goal, they invest in various solutions.

DB Schenker, for instance, invest in renewable energies and invest heavily in electrification of their fleet. We know this from 2021 when they pre-ordered approximately 1,500 fully electric vehicles- the biggest contract for electric trucks in Europe to date.

KA: Is there anything else you’d like to add regarding this report, Viki?

VK: This report is very useful for a variety of institutions and industries, including global manufacturers, supply chain managers and directors, procurement managers, financial institutions and investors. There is a vast amount of knowledge and insight to be gained from reading this report.

KA: Okay, Viki, any final comments?

VK: The report also contains valuable insights on the competitive landscape in the European road freight market in which we compared the top 20 companies against a range of criteria including their financial performance, their technology investments and strategies, and their sustainability strategies.

It’s hard to hear that smaller freight rate operators are struggling to survive. We’d love to hear from the small operators out there. How is your business? Email [email protected].

To hear the full interview with Viki, download the latest episode of Ti Talks Supply Chains here, or listen on your podcast platform of choice.

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