Half-time for the transportation industry is an opportunity for change

Author’s note: I was asked by Transporeon to look at what is happening in the European transportation market, and they provided me with access to their Transporeon Market Insights data for additional insights and perspective. This post is an excerpt of my comments from the July 2023 Transporeon Journal Market Updates video commentary. I encourage you to watch the full video commentary for more insights about the European transportation market.

It’s official, we’re halfway through the year. It’s time to pause for a moment and figure out what steps we need to take to finish the year strong. In this episode of Transporeon Journal Market Updates, we recap the questions we should be asking ourselves now to achieve just that.

Supply chain in the context of today’s economy

For over a year now, the economy has shown signs of sluggishness, and the outlook remains uncertain. According to CNBC's report on 8 June, the euro zone slipped into a recession in the first quarter of the year, with economists lacking confidence in the upcoming months.

Furthermore, the Wall Street Journal elaborated that economists forecast a slow and prolonged recovery for the continent in the latter part of this year, based on all known factors contributing to the situation right now. Both consumers and businesses are experiencing the burden of higher borrowing costs as the European Central Bank persists in raising interest rates to combat inflation. Unsurprisingly, overall sentiment towards the economy and inflation is fairly pessimistic.

Business advisory firm BDO says supply chain pressures continue to plague mid-sized businesses [in the UK] with 77% facing persistent disruptions in their supply chains – revealed by findings from a survey including 500 medium-sized businesses. The BDO press release dated 5 June adds that “Faced with these prolonged pressures, almost half (49.8%) of mid-sized businesses say they will be focusing on onshoring as much of their operations as possible in the next 12 months.”
 
The survey reveals that this onshoring trend is being driven by several factors, including a desire by companies to “reduce the impact of global geopolitical events on their business [and] a wish to avoid complex post-Brexit customs regulation.”

The onshoring trend extends beyond the UK. Despite an economic downturn in the region, manufacturers worldwide are acquiring European factories, driven by geopolitical and supply chain concerns, leading them to relocate operations closer to their customers. It is however easier said than done, as one of the biggest challenges is getting your suppliers and other trading partners to make the move too.

Capacity and Spot Price indices: one year on

We can look at the Market Insights dashboard for some year-on-year comparisons. In May 2022, the Capacity Index was 85.9, indicating a capacity constrained environment.  However, in May 2023, the Capacity Index rose to 101.9, marking a 19% year-over-year increase. Put simply, there's significantly more market capacity now compared to the same time last year.

Looking at the Spot Price Index, which tracks the spot rate across 70 major lanes in Europe and weighs each lane according to its transport performance, it was 117.6 in June 2023 -- an 19% decrease from June 2022.

The Contract Price Index, which tracks the contract rate across the same 70 major European lanes, was 120.93 in June 2023 – a 12-month low. However, the index hasn’t changed very much in the past 12 months, ranging between 120.93 this June and 123.71, which was the high reading last August.

Large discrepancies between Spot and Contract 

The biggest change over the past 12 months is in the difference between the Spot Price Index and Contract Price Index. For most of 2022, the Spot Price Index was significantly greater than the Contract Price Index; for example, the difference was 23 points in June 2022. Through the first six months of 2023, however, the Spot Price Index has been lower than the Contract Price Index. From April to June 2023, the difference between the two indices has been about 3 points,  suggesting that we’re now in a more balanced environment from a supply-and-demand perspective.

EU Cost Index remains high

EU Cost Index that shows the evolution of costs for trucking carriers across the 70 biggest lanes in Europe. It aggregates data into 5 clusters which represents the 5 biggest cost factors for carriers -- Driver costs, Fuel & Adblue, Vehicle, Toll, and Services -- and sums it up into a single index via a total-cost-of-ownership calculation model.

The Cost Index is forecasted to be 120.35 in Q2 2023 -- about the same as the 120.29 reading in Q2 2022. However, it remains significantly elevated compared to two years ago when it was 101.47 in Q2 2021.

The Cost Index is forecasted to increase to 121.31 in Q3 2023, driven in part by expected increases in labour costs, which remains the largest component of total costs for carriers.

Toll increase in Germany and shrinking labour force

In this episode of Transporeon Journal Market Updates I was joined by two industry experts for updates on key areas of the transportation industry. I spoke to Lena von Fritschen, Director of Market Intelligence at Transporeon about expected toll increases in Germany, and Sandro Russo, Carrier Manager at Transporeon about the European driver shortage.

If you want to hear what they both had to say – and you really should – watch my video blog.

Watch now

Time to step back into the field for H2

What is the biggest adjustment you’re going to make in your supply chain and logistics operations to finish the year strong?

Engaging in conversation together with all stakeholders will play a big role in your year-end success. Sharing ideas, listening to each other, finding common ground on desired outcomes, and truly working together as a team should be part of your regular practice – skills that can ensure a strong result every time, especially when the unexpected happens.