Even with all the changes we’re seeing in the freight transportation landscape, driven by the need for sustainability and capacity optimization, one thing is still certain: the logistics industry still depends on road freight.
Road freight contributed 77.4% of total inland EU freight transport in 2020 and grew by 7% in 2021. So, it’s clear how road freight costs play a big role in the European supply chain - and how navigating it well could make or break your transport planning strategy.
In this article, you’ll find answers to:
- How road freight rates are determined;
- How they were in 2021 and 2022;
- What are the road freight rate tendencies for 2023;
- And how to prepare for it.
What determines Road Freight Rates?
Basic Factors
- Weight: Most companies follow LTL (less than truckload) shipping over FTL (full truckload shipping), as this is normally cheaper. No need to pay for the whole truck. And most providers charge less for the more you ship.
- Distance: Longer the distance, the higher the costs.
- Handling: If the product is easier to carry, it’ll cost less to ship. Heavy and/or risky and dangerous cargo results in extra rates.
- Liability: It costs less if the product is less likely to get damaged or stolen.
- Stowability: If the good is too heavy or unstackable or has other restrictions.
- Density: Lower the density of a product, the more it costs to ship.
[These last 4 classifications are done by the NMFTA (National Motor Freight Traffic Association)]
- Additional Fees: There are other hidden charges you should keep in check, like VAS (Value Added Service), GRI (General Rate Increase), CRD (Cargo Ready Date), and Pallet Fees.
External Influences
The previous basic factors are still under your control. However, external circumstances also affect the prices - and you need to prepare for them:
- Demand: Increase in demand raises prices. The recent 46% increase in eCommerce sales shot up transportation prices.
- Fuel Costs: Increased fuel and electricity prices also impact trucking prices. European gas prices are 10 times higher than they were a decade ago.
- Shortages: There are 425,000 vacant trucker positions across Europe, causing more loads on the remaining truckers and increasing prices.
- Disruptions: Many international disruptions, like the pandemic, the Russia-Ukraine conflict, Brexit, and inflation, can and are impacting prices.
- Seasons: Peak market seasons like Black Friday, Thanksgiving, Christmas, Chinese New Year, etc., raise prices.
Road Freight Rates in 2021 and 2022
The European road freight rates index stood at a record high of 110.9 in Q1 2022 - 4.3 points more than in Q4 2021. And a whopping 7.5 points more than in Q1 2021. This marked the seventh consecutive quarter of increased rates across Europe.
After Q3 2022, the average price index is at an all-time high of 129.7. Up 19.6 index points year on year (YOY). Meanwhile, spot market rates have hit 142.6 points.
Diesel prices were also 52.7% higher than a year ago in the first quarter of 2021. Diesel costs usually account for one-third of the total operating transport costs. But because of the hike – it accounts for nearly 50% of the costs.
As you can see from the data, the market has been extremely volatile over the least few years. Let’s understand what’s being built for 2023 and how you can prepare for it.
Road Freight Rates tendencies for 2023
According to the “First Annual LTL Study” conducted by the Peerless Research Group, 78% of logistics buyers expect road freight rates to increase. And this is backed by logic. All external factors (fuel costs, trucker shortage, war, US economic situation, increased demands) show no signs of stopping down. So it’s only normal for 40% of the respondents to expect a double-digit increase.
On the other hand, the demand for eCommerce might slow down due to increasing inflation. Although this will help and balance out a bit of the capacity shortage, other important factors like the trucker shortage, labor shortage in warehouses, and increased transportation costs won't let road freight rates drop too much.
The results: the transportation market needs to expect road freight rates to stay the same patamar in the best-case scenario but still prepare for plan B in case we see skyrocketing rates again.
How To Prepare For 2023
Despite the road freight price increase, trucks are still a necessary way to transport goods across mainland Europe. So don’t rule out trucks entirely.
But you can, however, reduce your costs using more reliable and less volatile alternatives. Try using multimodal transport instead of unimodal transport to reduce your dependency on trucks, diversifying and bringing more flexibility to your shipments.
To fully prepare for 2023, understand what drives the volatile shipping rates in the transport industry and then search for a digital multimodal expert partner that can optimize your transport planning and management strategy. You can learn rouvia facilitates by booking a meeting here.
