IRU: Road freight rates softening after peak levels in Q3
Diesel prices, driver shortages and drought in Europe have all played a significant role to push average European road freight rates up again in the third quarter despite lower consumer spending. However, data from the end of the quarter shows prices softening towards the end of the quarter.
According to the European Road Freight Rtes Benchmark Report, produced by Transport Intelligence, Upply and IRU, average European road freight contract rates hit an all-time high of 129.7 index points in the third quarter of 2022, rising 5.4 index points quarter-on-quarter and by 19.6 points year-on-year.
In the spot market, rates hit 142.6 points, an increase of 6.0 points Q-o-Q and 26.4 points Y-o-Y.
This quarter’s smaller rate rises in both spot and contract signify that the market has adjusted to higher costs whilst higher production costs and lower consumer spending power have started to ease the upward demand-side pressure on rates, the report reads.
Growing energy costs in Germany and uncertainties in energy supply are causing difficulties for the German industrial sector. This has pushed Germany’s manufacturing industry into decline with Germany’s manufacturing PMI falling to an average of 48.7 in the third quarter, a 5.1-point drop Q-o-Q. This puts Germany’s manufacturing sector firmly in contraction territory. This is the first clear sign that German industry will begin to demand less and less road freight as its factories demand fewer outputs and produce fewer intermediate and finished goods.
Forward delivery electricity prices in the UK are up over 500 percent Y-o-Y, with prices increasing 64.2 percent in August alone. The UK heads into winter in the most uncertain energy supply predicament in Europe. While the effects of this are uncertain, it is possible there will be interruptions to manufacturing in the UK over the winter, reducing road freight volumes.
Among main European countries (France, Spain, Germany, Romania, Poland and Denmark), between January and September 2022, the demand for drivers is continuously increasing (+44 percent). The shortage is forecasted to be far worse in 2026, with a multiplier effect of up to seven in the case of France.
Thomas Larrieu, Chief Executive Officer at Upply, comments, “In a context of global inflation, the European climate is marked by weakening demand and consumption. This is slowing down the increase in road freight rates, but it is not reversing the trend. Indeed, road carriers are facing workforce shortages that are affecting the amount of capacity available, as well as an increase in their overall costs. The Upply data show a growing gap between spot and contract prices. More than ever, shippers have an interest in favouring long-term contracts in order to secure their capacity and obtain competitive rates from carriers.”
IRU Senior Director of Strategy and Development Vincent Erard adds, “Drivers are a critical factor in keeping essential supply chains moving, something we saw clearly during the pandemic. Now, logistics operators and freight rates in many countries are threatened by another looming crisis: the growing shortage of this invaluable human resource. People are at the heart of this challenge. We must continue pushing efforts and investments boost the attractiveness of the driver profession, especially to young people, and make it easier for people to qualify and join the driver pool.”