European Road Freight Rates Index Up 4.3 Points in Q1, Hitting a New Record High

The result of the forces currently exerting themselves on the European road freight market is an uncertain, challenging and complex market environment. After buoyant consumer spending in 2021, rising inflation in the first three months of 2022 and the expectation of higher interest rates to come have seen confidence amongst consumers erode in much of Europe, including in Germany, the UK, Spain, Italy and France.  

The effects of inflation on the supply side of the European road freight market, especially on diesel prices, have led to substantial increases in rates in Q1 2022. The war in Ukraine and the subsequent restriction of oil supplies from Russia into Europe has led to further upward pressure on prices. The EU-wide weighted average of a litre of diesel has risen sharply since Q3 2021. Compared with the pandemic-induced low of €1.10 during Q2 2020, the weighted average cost of diesel was 52.7% higher in the first quarter of 2022.  

Thomas Larrieu, Chief Executive Officer at Upply, comments: "The European road freight market has been marked since 2021 by an inflationary dynamic: freight rates are gradually increasing, and this trend shows no signs of abating. In addition to the factors that have been known for several months (dynamic demand with the reopening of the post-Covid economies, rising fuel prices, pressure on capacities and driver shortages), there is now a parameter that is exogenous to the usual problems of the sector: the war in Ukraine. This conflict is disrupting European supply chains, affecting driver availability, and causing an unprecedented spike in fuel costs. In the coming months, we can expect further increases in transport costs, which could fuel a subsequent rate increase. However, the price surge could be contained by a lull in European demand in response to widespread inflation in goods and services."

The worst effects of this fuel price increase may be yet to be registered in the quarterly index, as the price spike did not occur until after the war started in Ukraine on 24 February, and carriers were able to make use of fuel purchased in advance at lower prices through the end of February and early March. With lower-cost fuel reserves now depleted the impact on rates is likely to increase in the near term.

While the most apparent effect of the war in Ukraine has been to increase fuel prices, the conflict has also worsened the European driver shortage, driving up labour costs and applying more upward pressure on rates. New data from IRU shows driver shortages across Europe increasing to up to 425,000 unfilled positions in 2021. These shortages have been worsened by the war, with over 228,000 non-EU truck drivers operating in Europe in 2021, many from Ukraine and Belarus.

In addition to fuel price increases and driver shortages in the context of the war in Ukraine, another significant change this first quarter is the entry into force of new EU Mobility Package rules in February. Impacts on costs and rates are still limited as 22 of 27 EU countries are late in implementing the new rules on the posting of foreign drivers, including collecting driver remuneration, and new market and profession access rules. The impact of these new rules on European rates will become clearer in subsequent quarters.

IRU Director of Corporate Services, Vincent Erard, comments: “The unprecedented increase of transportation costs in Europe, notably due to rising diesel costs, supply and capacity disruptions is currently putting logistics operators and the whole supply chain under high pressure. Regulatory changes and the war in Ukraine exacerbate uncertainty and complexity for the European road transport sector”.

The outlook for 2022 is for inflation to persist in most economies and fuel price to remain high, so it is highly likely that freight rates will remain elevated and may even continue to rise over the coming quarters across Europe, at least until the end of 2022.

However, as the wider effects of higher inflation begin to reduce consumer demand, and central banks are likely to increase interest rates to contain inflation, we should expect to see a substantial decrease in aggregate demand over the course of 2022. That is likely to translate to a slowing in road freight volume growth over the course of the year, which may help to ease the upwards pressure on rates as available capacity competes for fewer loads.