UK road freight prices hit by falling demand, inflation, Ukraine war and Brexit, report reveals

Inflation, weakening demand, social instability and the war in Ukraine are leading to tumultuous developments in road freight prices, according to the Road Freight Rate Benchmark for Q2 2022.

Against this backdrop, rates on routes between France and the UK have grown “significantly less” than others around Europe, according to the report, which is produced by Transport Intelligence, digital data experts Upply and the World Road Transport Organisation.

It found that only four routes saw contract prices fall quarter-on-quarter and three of those were France to Great Britain (FR-GB) routes.

In the contract market, rates on the headhaul from France to the UK fell by 2.1% to a median price of £1,421.54 (€1,686). Per kilometre this stands at £2.43 (€2.88 /km), which is 4.1% lower than their rate in Q2 2021, the report found.

On the backhaul to France, prices in the contract market reached a median of £877.58 (€1,041). This stands at £1.35 (€1.60) per kilometre, representing a 5% quarter-on-quarter increase.

The report states that this increase is below the European average in the contract market, suggesting it is under less pressure than the rest of the continent.

There were no price falls in the spot market with prices reacting quickly to cost rises in the road freight industry, however, the report found that rate increases on this route are just two-thirds of the European average.

On the headhaul into the UK, prices reached an average of £1,701 (€2,017) or £2.90 per km (€3.44 /km) per journey, up 7.4% quarter-on-quarter.

In the opposite direction, prices reached £1,076.82 (€1,278) or £1.66 per km (€1.97 /km), an increase of 14.5% quarter-on-quarter.

In terms of diesel price rises the report found that in July the price of diesel at UK pumps was the highest of all major European countries sitting at £1.98 (€2.35/L), 16.8% higher than French prices and 19.1% more expensive than German prices.

In addition, the data shows that in the weeks between 23 May and 14 July, diesel prices fell in all major European countries except for the UK.

The report states: “This suggests that diesel has played a significant role in Q2 price rises in the UK band will continue to inflate rates on the backhaul in Q3.”

It also warns that inflationary pressures on both sides of the Channel could see summer industrial action in the transport sector in both countries.

The Benchmark report found that while demand from both countries has been subdued and is weakening going into Q3, the UK is taking the hardest hit.

It points to record inflation figures in the UK, with UK consumers faced a 40-year high inflation rate of 9.1% and the Bank of England warning that this is expected to exceed 11% by October.

“More than half of the goods in the UK’s inflation basket have risen by more than 7%, while the UK’s demand for cars is also falling with car registrations in June 2022 down 24.3% year-on-year.

“The UK’s manufacturing sector is also suffering from rising prices, with the costs of raw materials rising at their fastest rate on record,” the report notes.

However, whilst French consumers face a less extreme inflationary environment, Banque de France expects inflation to reach 6.5-7% by the end of the year.

Demand from the French economy is also weakening but at a slower rate than seen in the UK economy, according to the research.

The impact of Brexit is also taking its toll. The report states: “Falling economic activity is not the only factor that has reduced demand on this route. Following Brexit, journeys on this route have become more costly and time-consuming.”

It points to research by the London School of Economics which found that while exports have largely recovered, UK imports from the EU fell by 25% relative to other destinations and that the variety of goods trades has fallen by 30%. ]

“Low-value goods have been most affected by increased admin costs. Summer travel has caused further congestion and with new border checks due to be introduced in September, more delays could add more pressure to rates while demand falls off in the autumn,” the Benchmark report forecasts.

Whilst the HGV drover shortage continues in the UK, it is not alone in facing this problem with the report finding that the problem is affecting the entire European continent.

It found that Germany is in a particularly critical situation with an estimated shortage of 50,000 to 80,000 truck drivers. Migrant workers account for 24% of the German driver workforce and the loss of Ukrainian citizens returning to defend their country has further restricted the supply of drivers in Germany.

Thomas Larrieu, chief executive at Upply, said: “The lull in European demand should slow the upward pressure on road freight rates. On the other hand, hauliers are still facing significant cost increases - fuel, labour, etc - so rates are likely to remain at high levels in the coming months.”

Nathaniel Donaldson, economic analyst at Ti, added: “The effect of rising costs in 2022 is now very evident with road freight rates across the European continent reaching new all-time highs.

“Initial fuel price rises following the invasion of Ukraine have held and produced a much more costly environment for European road carriers whilst industrial action and a worsening driver shortage keep capacity tight.

“A range of indicators are pointing towards a drastic slowdown in consumption and production which will ease further increases while high costs keep rates elevated."