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
- Trends and developments from 2021-2023
- What are the road freight rate tendencies for 2024
- How to prepare
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 in 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.
However, we saw a major slow down in demand due to increasing inflation and high interest rates. No volume to speak meant in its turn capacity freed up. Both in Q2 and Q3 2023, the spot rate index was lower than the contract rate index. In the third quarter 2023, the spot market index was 14.8 points lower than the same period last year. The contract market rates, however, actually rose and were only 0.4 points lower compared to last year as they actually rose in the third quarter.
For the final quarter of the year, the IRU expect the rates to remain subdued. We could potentially see a small seasonal increase, but do not expect a major hike.
What to expect for 2024
According to IRU, road freight rates will stabilize in 2024 as demand in Europe recovers and costs increase, for example the new truck toll in Germany will drive costs significantly. It is expected that road carriers will try to pass this cost on to shippers.
In terms of the driver shortage, IRU forecasts the driver shortage at 11 % in 2024. The number is based on growing transport demand and an aging driving population.
Upply also stated that road freight rates have been holding up fairly well despite the downturn market, and we can expect this to continue due to the rising fuel prices and wages.
You can, however, reduce your costs using more reliable and less volatile alternatives. Try using multimodal transport instead of unimodal trucking to reduce your dependency on trucks, diversifying and bringing more flexibility to your shipments.
To fully prepare for 2024, 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.
