European road freight rates and spot rates continue to drop as freight demand “stagnates”

The latest report from Ti, IRU and Upply on road freight prices has revealed that both spot and contract rates are falling quarter on quarter, dropping by 7.5 and 2.8 points, respectively.

The report is predicting that with volumes slackening and available capacity improving, the downward trend in rates looks set to continue in 2023.

Spot rates in the European road freight market experienced their second consecutive quarter of decline in the first quarter of 2023, the research found, marking a significant shift since the onset of the Covid-19 pandemic.

The spot rates index fell in Q1 by -7.5 points quarter-on-quarter to 132.5 points, with the report noting that this is the first time rates have fallen for two consecutive quarters since the second quarter of 2020.

The spot market index has also fallen below its Q2 2022 level, when the Ukraine War saw costs rise. Despite this, spot rates remain up by 8.9 points year-on-year.

The contract rates index has also fallen by 2.8 points quarter on quarter, the first fall in six quarters, but it is still up 10.7 points year on year, according to the research.

Spot rates, which are one-off rates for transporting freight, have declined 1.5 times faster than contract rates on average in Q1 2023. This comes as a result of falling demand from European economies, the report states, reducing the immediate demand-side pressure on spot market rates.

Despite some easing of inflation and quarter on quarter growth in seasonally adjusted monthly consumption figures in the UK (+0.5%), Spain (+1.0%), and France (+0.4%), year-on-year figures reflect the ongoing impact of persistent inflation over the past 12 months.

Average seasonally adjusted monthly consumption is down year-on-year by 4.3% in the UK, 6% in Germany, 3.9% in France, and 2.8% in Italy.

The report warns that as wage growth lags behind inflation, the cost-of-living crisis worsens, reducing the appetite and ability to consume goods.

“This will further reduce demand-side pressure on road freight rates, allowing for further rate falls in both markets,” it states.

Thomas Larrieu, Upply chief executive officer, said: “While it's typical for road freight rates to dip during Q1 after the holiday peak season, this year's drop is hitting harder than usual.

“The market appears to be recalibrating after experiencing a hefty double-digit surge in 2022, but how far will it go? It's doubtful that we'll return to pre-pandemic conditions, especially with capacity shortages remaining a major concern.”

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Although fears of an energy crisis have subsided and energy prices have fallen, last year's high prices continue to act as a drag on Europe's industrial growth, the report finds.

Available Q1 2023 data from official sources reveal a decline in production in the UK (-0.5%), Spain (0.3%), and Poland (-0.1%), while production in France (+0.9%) and Germany (+0.5%) has grown.

Inflation is eroding the demand for consumer goods, while demand for capital and intermediate goods remains steady, the report warns, adding that high interest rates will likely deter major expansions in production in 2023, limiting the pressure on rates and allowing for further rate falls.

Vincent Erard, IRU senior director for strategy and development, added: “The stagnation in freight demand from Q4 2022 has continued into 2023, flattening the driver shortage curve – for now.

“But nothing has changed in the long-term outlook of the profession. The share of young drivers remains extremely low.

“Any jump in demand from European economies will further exacerbate the shortage of drivers, which in turn will limit economic growth.

“We can’t take our eye off the ball. We need to continue pushing for both immediate and structural solutions to driver shortages.”

Driver shortage is projected to see 9% of positions unfilled in 2023, slightly lower than the 10% in 2022, the report finds.

Despite the easing of demand-side pressure, the supply pressures remain, the report says. A worsening driver shortage is eroding capacity, and, while fuel costs have fallen from their 2022 high, they still remain elevated compared to 2021.

The cost-of-living crisis across the continent is also increasing wage demands in 2023, resulting in labour costs increase. The report predicts that the likely result is further freight rate falls resulting from falling demand.

However, the size and scope of these falls will be limited by supply-side pressure that has created a higher cost base which will prevent freight rates from reaching historic lows, it adds.

Michael Clover, Ti’s head of commercial development, said: “In Q1 we saw contract rates start to follow spot rates in their drop off, as predicted, and we expect to see this trend continue to trend downwards in Q2.

“As volumes dropped off in Q1 we saw a continuous increase in available capacity easing pressure on rates, but capacity remains constrained by driver shortages.

“The outlook is for rates to continue to fall in Q2, although seasonal demand will support higher rates in Q2 and we expect rates to remain at a higher level than their pre-pandemic base.”