Quo vadis transport rates?

- Author: Konrad Potocki
Quo vadis transport rates

Using historical data to forecast transport rates is becoming less and less effective. In early 2020, the appearance of a black swan in the form of the SARS-CoV-2 virus rendered most predictions and trends obsolete. Meanwhile, no one expected that there was another crisis waiting just around the corner with the Russian invasion of Ukraine.

 

Lifecycle of transport rates

So far, business cycles have been well-ordered, with a standard duration of 3 to 4 years. In a nutshell, carriers responded very quickly to the growing demand for transport services by buying additional trucks and increasing capacity. Due to the high fragmentation of the transport market, this led to an increase in supply in the short term. According to the basic laws of economics, prices for transport services began to fall.

The natural consequence of these actions over time was a drop in prices reaching the level of operating costs. As a result, the pace of purchasing new trucks slowed down and the number of vehicles in use was gradually reduced. At this stage, once again, the distribution of forces between demand and supply changed, restoring price power to transport services. After a while – when transport rates started to rise – carriers would buy trucks again, increasing capacity and the process started all over again. Unfortunately, this safe, industry-familiar cycle is now a thing of the past.

 

Present day

The current breakdown in business cycles is due to a long-term supply shortage. Several factors are contributing to this, including very strong economic growth, particularly in the e-commerce sector, downtime in the production of tractor units and semi-trailers (due to a shortage of semi-conductors) and a labour shortage after the economy reopened in 2020.

Currently, It is almost impossible to forecast supply and demand based on historical data. The disruption of transport rates in recent months is well illustrated by the graph prepared by Piotr Roczniak, Head of Business Consulting at CargoON.

 

 

“The first signs indicating the beginning of a turbulent period appeared with the first wave of the pandemic. Significant fluctuations in transport rates were observed throughout 2020, with upward pressure on domestic transport costs associated with rising fuel prices.Over the past two years, we have seen more developments that have significantly impacted the status quo. Successive waves of the coronavirus pandemic, the blockade of the Suez Canal by the container ship Evergiven, the introduction of the mobility package. Just when we could see some signs pointing to stabilization, the Russian aggression in Ukraine began, further inflating oil prices and depleting the stock of available professional drivers. I would not expect the next few months to bring stability.

Piotr Roczniak, Head of Business Consulting at CargoON.

 

Future

The current economic and geopolitical situation requires all market participants to be more and more flexible with their budgets and expectations. The digitalisation of logistics processes, artificial intelligence and algorithms allow for flexibility in management and have a direct impact on maintaining competitiveness.

 

The transport sector is highly vulnerable to economic fluctuations in the European Union. Demographic changes, geopolitical tensions and the growing influence of legal regulations are intensifying the uncertainty about the long-term development of the economy.Therefore, strategic planning and the readiness to react quickly to different market scenarios is becoming essential. It should be noted that the current competitive advantage in the form of lower labour costs will start to lose its significance, while comprehensiveness, flexibility and adjustment of provided services to the market needs will become more important. So far, companies have invested heavily in the development of their fleet, and in the next few years the focus will shift towards solutions.”

Martyna Dziubak Head of Logistics and Automotive Sector at Santander Bank Polska.

 

 

*  https://tlp.org.pl/wp-content/uploads/2019/09/pwc-transport-przyszlosci-web.pdf

** https://www.iru.org/

*** https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Road_freight_transport_statisticshttps://ec.europa.eu/eurostat/en/web/transport

**** https://go.upply.com/en-gb/ti-upply-iru-download-q4-2021