The impact of Capacity Shortage in European logistics

There’s no question that capacity shortage is one of the biggest challenges the logistics industry has faced during the last few years - and it’s not easy to understand or navigate.

The curve between available transportation space and demand has been shifting drastically since 2019, being accentuated later because of the COVID-19 pandemic, for example. The impacts of it are almost immediate to the industry:

  • Higher transport costs for shippers, carriers, and freight forwarders;
  • Unaccepted transport orders, causing delays to the entire chain;
  • Lower service level, impacting customer service.

To gain more knowledge about other factors impacting supply, check our article The 3 biggest challenges in transport management for 2023.

Workflow showing the impact of capacity shortages on the supply chain

Being prepared with risk management and a plan B in case of capacity shortage needs to become part of the decision-making process of any transport manager, and the first step to achieve this is understanding why it’s happening.

We gathered essential data to help you through this process, as well as how to overcome any capacity constraints issues in your transport chain. Keep reading to find out.

Capacity shortage reality in Europe 2022 - 2023

During the first half of the coronavirus pandemic in 2020, the demand fell drastically, but this situation changed rapidly when consumers began putting their saved money into goods again. According to Deloitte, consumer spending was ready to grow by 8.1% in 2021 after a 3.8% contraction in 2020.

Even for people outside the logistics industry, the disruptions in logistics became visible: delays through every step of the supply chain were never higher, impacting final clients directly. Project44 reported that the shipment delays from China to Europe rose to 6 days in December 2021, and it is not bound to get easier in 2022.

Since then, more factors have been added to the capacity shortage challenge, like the distribution and economic impacts of the Russian-Ukrainian conflict and the China-U.S. trade war, but we’ll dive into this later in this article.

Now, seeing how the market had slightly relaxed over the summer months but began to decline again with the peak season in winter and growing inflation, we start to confirm the trends for 2023. According to TIMOCOM data, the average freight vs. available space ratio in Europe was 78:22, compared to 73:27 in August, confirming ongoing congestion.

Let’s understand the biggest causes of capacity constraints in the industry - and how this will play out in the next year.

Where does the capacity shortage in logistics come from?

Truck driver shortage

First, let’s understand the driver shortage, categorized as the lack of enough “pilots” to fulfill demand when there’s no 1:1 driver-to-truck capacity. You have the need and vehicles with capacity but no drivers to transport them.

Even though this problem started many years ago, it is still one of the biggest generators of the capacity shortage we’re facing nowadays.

According to IRU’s annual driver shortage survey, the truckers shortage went up 42% between 2020 and 2021. Even with wage and work conditions improvements, we should still expect an increase of 42% by 2022.

For some time now, drive truckers have been pressuring companies due to low pay and poor working conditions, but that’s not the only reason for the shortage. Despite improvements in wages and work conditions, IRU’s report shows that we should still expect an increase of 40% in unfilled driver positions in 2022.

One big challenge, harder to solve, is worrying countries across the world when talking about the trucker shortage: demographics, age, and gender.

In most regions, we see small participation of women in trucker jobs, less than 3%. That, combined with the aging population of drivers, average above 50 years, close to retirement, and how much the industry is struggling to attract young drivers, creates a ticking time bomb.

Graphic showing the gap between young and old truck drives in Europe
IRU’s Driver Shortage Global Report 2022

This challenge doesn’t seem to be going away: 30% of drivers will be retired by 2026 - with a rate of younger drivers joining the workforce being 4-7 less. The total shortage in Europe could get to two million.

This leads us to another component impacting capacity shortage: supply chain bottlenecks.

Supply bottlenecks across Europe

Since eCommerce and consumption rates had a strong rebound in late 2020, the logistics industry has also been suffering from gaps in other steps of the supply chain. More now than ever, we’re seeing how much our market is impacted directly and immediately by external events.

Adding to these, we’ve been watching how internal disruptions are translating into more bottlenecks, like port congestions, high container dwell times, lack of visibility from transportation, and the supply of base products and equipment from Asian countries, currently going through strict lockdown measures.

The results are that 60% of consumers could not get products in 2021, shipment delays, and high transportation rates and prices.

Price hikes for freight transportation

The Ti/Uplly/IRU Road Freight Rate Benchmark shows that the European contract road freight rate index reached an all-time high of 121 points in Q2 2022, up by 6.1 points quarter-on-quarter and 13.1 points year-on-year.

The hike in transport prices is a consequence of what we already mentioned here, but also connected to other factors:

  • European rising inflation, reaching 8.6% in June 2022 and growing for 2023;
  • Surging fuel prices are going up across the world. According to IRU, in Q3 in Germany, the cost of diesel was 38.5% higher than in the same period in 2020, followed by +23.5% in France, +20.6% in Italy, and +26.6% in the UK.

The surging fuel prices, driver shortages, increased demand, and tight supply have driven European road freight rates to record levels.

With this last challenging factor developing the capacity shortage in 2022 to 2023, we watch a cycle being formed, generating gaps and eating away margins for every niche of the logistics field, but especially for transportation companies.

Digital multimodality as the solution

Breaking the cycle and learning to navigate the capacity constraints problem is not easy, but possible if using the knowledge and resources available in the market.

To contour the logistics consequences of the Russian-Ukrainian conflict and competition for available truckers, for example, companies are starting to look to regional supply chains and rail transport. Both opportunities can work faster if taking advantage of multimodal transport.

But how can you guarantee the efficiency of multimodality transportation? That’s when technology, the key to overcoming capacity constraints, comes in.

Intelligent solutions like rouvia can allow you to reach a diverse and integrated network of carriers, guaranteeing smart and uncomplicated freight planning.

Moving from unimodality or manual multimodal transport to a freight forwarding platform will allow you not only to compare rates and routes easily but also to gain time and reduce operational costs of tracking and management.

Having real-time and analytics data to improve your decision-making power is the first step to being ahead of capacity bottlenecks. Understand how you can get started!

Clara Barroso
Logistics Marketing Manager
November 24, 2022
Digitalisation and TechnologySustainable LogisticsSupply Chainrouvia Updates