A cooling is coming for economies and supply chains. Download the free report
The locomotive of increased demand is starting to slow down across Europe, and economists are in no doubt: Europe is facing an economic crisis. How will supply chains change in the light of this? Will demand for transport decline sharply? The second issue of the transport market data analysis 'Market Insights ON' is now available.
The authors of the report try to deduce, on the basis of the available data, what lies ahead for supply chains in the coming months: how fuel prices will change, whether the energy crisis will have a significant impact on production costs, what challenges the introduction of sustainability in transport will face.
Among other things, the report includes an analysis of transport rates for selected European countries over the last 32 months. Since the war started in Ukraine, the dynamics of rate increases have accelerated. In February, 115% of the initial rate (January 2019) had to be paid for deliveries to Germany, and by mid-July 2022, it was already 145%. In the five months since the outbreak of the war, the average freight rate to Germany has increased by 30 percentage points.
It is clear that rates in each country have steadily increased, with the biggest rebound in 2022. Such growth is mainly influenced by 3 factors.
- Inflation, which has been rising since 2021, has accelerated as a result of the war in Ukraine and has been rising steadily throughout the European Union, but most rapidly in the countries of Central and Eastern Europe. Inflation is also rising as a result of rising commodity prices, remaining high levels of consumption still fueled by public support after the pandemic.
- Rising fuel prices, which can be clearly seen from the second quarter of 2020. The OPEC countries added their “brick” in October this year, when they decided to limit production and thus de facto raise the price of oil.
- The war in Ukraine, which has contributed (since March this year) to a spike in energy commodity prices and a further increase in inflation.
According to the analysis, some countries have seen a drop in freight prices since August this year due to lower demand for capacity. This is a harbinger of recession rather than a seasonal drop in prices – but we need to wait until the end of this quarter to make a final verdict.
– The war in Europe, galloping inflation and the raw materials and energy crisis have already led to a decline in demand for goods and services. A further decline in consumption will affect all sectors of the economy, including road transportation – predicts Nuria Lacaci, secretary general of the Asociación de Cargadores de España (ACE), an association that represents Spanish shippers and logistics managers.
Facing these challenges, large companies are trying to change the operation of their supply networks to prevent constant shocks to the supply flow. They are increasingly abandoning long-distance transportation in favor of local, domestic sourcing. Higher delivery costs are offset by shorter transportation routes and fewer disruptions to the entire chain. But the looming spectre of an energy crisis is increasingly clear on the horizon.
– The gigantic increase in gas prices will have considerable consequences for the economy. In Germany, there is a growing number of small and medium-sized companies in the east of the country that have halted production because of it. Besides, gas prices are also directly affecting the condition of German carriers. Due to soaring energy prices and a persistent shortage of drivers, numerous transport companies have had to get rid of some of their trucks or close down business – explains Guido Kuckartz, supply chain expert and manager at CargoON.
As the authors of Market Insights ON forecast, the slowdown and then expected crisis will not manifest itself in a sharp drop in demand for capacity everywhere and to the same extent, but rather in local declines on specific routes, in specific sectors of the economy. However, no one is really questioning the prediction that the crisis will reduce demand for transportation. The only question is when this process will begin in a perceptible way
Read more in the second issue of Market Insights ON. Free download: