Spot rates in Europe continued to fall below contract levels in the fourth quarter of 2023, according to the latest "European Road Freight Rate Development Benchmark" report by analysts Transport Intelligence and Upply. The index of spot rates decreased by 4.5 points, while the index of contract rates increased by 1.7 points compared to the third quarter. The growth of the latter took place on the wave of an increase in road tolls in Germany.
Spot rates in Europe continued to fall below contract levels in the fourth quarter of 2023, according to the latest "European Road Freight Rate Development Benchmark" report by analysts Transport Intelligence and Upply. The index of spot rates decreased by 4.5 points, while the index of contract rates increased by 1.7 points compared to the third quarter. The growth of the latter took place on the wave of an increase in road tolls in Germany.
At the end of the IV quarter, the European index of spot rates was 123.8 points. His fall accelerated. Back in the third quarter, the drop amounted to 1.2 points, and in the fourth - 4.5 points on a quarterly basis. Spot rates have been falling significantly for several quarters already – their level at the end of 2023 was as much as 14.8 percentage points lower on an annualized basis.
This situation is the result of low demand for transport services in Europe. TI analysts noted that the low level of consumption, which has dragged rates down since the end of 2022, was also accompanied by a low level of industrial production in the last months of 2023. Both of these factors have a negative impact on the demand for transport.
According to TI data, industrial production in the fourth quarter of 2023 decreased in Great Britain (by 0.9 percent), Germany (by 1.6 percent) and slightly in France (by 0.2 percent). Where growth was recorded - in Poland and Spain - it was insignificant (by 0.4 and 0.7 percent).
Contracts up
For its part, the index of contract rates grew for the second quarter in a row (by 1.7 points quarterly) and reached 129.4 points. However, this is only 0.9 percentage points higher year-on-year. In the case of contract rates, the growth is determined by the high fixed and operating costs of carriers on the Old Continent. Although the increase in fuel prices in 2023 passed, diesel fuel at the end of the year cost an average of 10 percent. more than before the start of the war in Ukraine.
In addition, fixed costs for operators have increased by 83 percent due to the December 2023 toll increase in Germany! Despite the fact that they have been active since the beginning of December, they have effectively increased the contract indicators on routes from Germany - this will be discussed further.
Over the past three years, on average across Europe, labor costs in the transport industry have increased by 28 percent, repair and maintenance costs by 20 percent, tires by more than 21 percent, spare parts by 13.5 percent, and insurance - by 8.7 percent. All this puts pressure on contract prices.
German tolls are felt a little in Poland...
On the route between Poland and Germany, which is the most important from the point of view of Polish transport, almost only downturns are observed. The contract rate to Duisburg in the last quarter of 2023 was €1,427 (€1.32/km) – up 4.4 percent. less quarterly and by 14.2 percent. less on an annual basis. On the spot market, rates on routes to Germany averaged 1,566 euros (1.45 euros/km) - by 1.4 percent. less compared to the previous quarter and by 13.7 percent. less than in the IV quarter of 2022.
Spot rates on the return journey to Warsaw also decreased. On average, the route from Duisburg cost €1,265 (€1.17/km). This is by 5.7 percent. less than in the third quarter of 2023 and by 17.8 percent. less on an annual basis.
However, the first effects of the increase in road tolls introduced in December are already visible. In the IV quarter of 2023, the contract rate to Warsaw increased for the first time in over a year. It amounted to 1,183 euros (1.09 euros/km) – having increased by 2.3 percent. compared to the previous quarter. However, it is still below the level of the end of 2022 (by 4.3 percent).
The factor affecting the tariffs on the route between Poland and Germany is primarily the difficult economic situation in Germany. Retail sales in the 4th quarter of 2023 decreased year-on-year. In addition, industrial production and new orders in industry are decreasing.
The year-on-year decline and low levels of optimism among German entrepreneurs and consumers are hitting not only spot but also contract rates as carriers see the negative trend as long-term. Low demand on the German route even offsets the increase in costs caused by the increase in tolls. For its part, a slightly healthier level of demand from Poland and a better state of the Polish economy led to an increase in these costs, which was reflected in rates. Hence the increase in contract prices for Polishthat direction.
...more on the route to France
The impact of higher German tolls was also noticeable on another important route - from Germany to France. On the route to Lille, the contract rate increased by 10.2 percent. quarterly up to 756 euros (2.5 euros/km). However, it is still 2.9 percent. less than in the fourth quarter of 2022. The spot rate on this route was 719 euros (2.38 euros/km) - less both quarterly (by 2.2 percent) and year-on-year (by 17 percent).
It is worth emphasizing that the contract rate to France was higher than the spot rate for the first time since the introduction of the index - since the first quarter. 2017
On the way back to Germany, the increase in contract rates was also recorded - by 2.2 percent. quarterly up to 497 euros (1.65 euros/km). On an annual basis, this is a decline of 6.4 percent. The drop in prices for spot transport slowed down and amounted to only 0.3 percent. quarterly The rate at €531 (€1.76/km) was still up 3.2%. lower than in the fourth quarter of 2022.
Apart from the increase in road tolls in Germany, the factor that pushed up the contract rates between Germany and France was the good state of the car industry. At a time when industry in Germany, and to a lesser extent in France, is going through a crisis, the automotive sector can consider 2023 a very successful year. Especially after the collapse in the pandemic years. Sales of French cars in the IV quarter of 2023 increased by 12 percent. year on an annual basis, and production - by 5.9 percent.
Things are not bad in the German automotive sector as well, especially compared to the barely breathing industry - production increased by 1.7 percent. on an annual basis.
Up to 40 percent European car factories are located in Germany and France. Currently, the good state of this sector is pulling the stakes between Europe's two largest economies upwards.
German price range
The effect of the toll increase in Germany was also noticeable on the route to Austria. According to the contract, the route from Duisburg to Vienna was 10.6 percent. more expensive quarterly (1582 euros). The spot rate to Vienna, as well as the spot and contract rate to Duisburg showed a quarterly decrease.
It is worth adding that TI analysts also looked at domestic rates in Germany to see the effect of the increase introduced in September. He was immediate. In December 2023, contract rates increased the most in 15 months - by 8.3 points on a monthly basis. For comparison, the spot index increased by only 1.9 points during this period.
Waiting for demand recovery
TI analysts predict that in 2024, on routes to and from Germany, contract rates should rise due to the higher level of tolls in that country. On export routes from Germany, it is already clear that these tariffs exceed spot tariffs.
Carriers are facing difficult times in the spot market. Low demand puts them under the wall with growing (even due to tolls) costs. This will further reduce the already low margin. In the long run, this should lead to higher fares regardless of demand – otherwise many carriers will not survive.
We will see an increase in rates, but it will not be too much because demand is still low,” warns Thomas Larrieux, CEO of Upply. He adds that this year is unlikely to bring dynamic growth in demand. If this happens, then, most likely, in the last quarter of the year.
Nathan Donaldson, an analyst at Transport Intelligence, agrees.
We don't expect further significant rate cuts, but we don't expect any significant growth either," he says.