Headwinds to slow European road freight

A confluence of headwinds will halt the recovery and growth momentum of European economies: the war in Ukraine, an energy crisis, high inflation, and a looming global recession. This will weigh on consumer purchasing power which in turn will impact demand for road transport.

GDP growth in advanced European markets is forecasted to fall from 3.2 percent in 2022 to 0.6 percent in 2023—a downward revision of 0.7 percentage point from the IMF July projections. In emerging European economies, growth is projected to decline sharply from 4.3 percent in 2022 to 1.7 percent in 2023—a downward revision of 1 percentage point.

Ti expects both the domestic and international European road freight market growth to slow down in 2023, but the slowdown will be more pronounced for domestic deliveries.

A key driver behind the stronger performance of the international section might be retail and e-commerce sales which stimulate more cross-border flows of consumer goods.

Moreover, many industrial sectors (such as construction) are likely to feel the effects of the overall weakening of economies expected in 2023, and these flows tend to be more domestic in nature and will dampen domestic market growth, said Ti.

The domestic European road freight market is due to expand only by 0.7 percent in real terms whereas the European international road freight total market is expected to see growth of 2.1 percent in 2023.

High inflation will weaken demand for road freight services in, through and out of Europe. The energy crunch, resulting price increases and recessionary risks will continue to counteract the economic recovery in Europe in 2023. According to the IMF, Germany and Italy will tumble into recession in 2023 and it is assumed that this development could be representative for the entire Continent.

Slowing demand for road freight

A shortage of raw materials and intermediate products, weakening demand and energy shortages are clouding the outlook for the manufacturing sector in Europe. Germany, for instance, is Europe’s leading manufacturing exporter and a survey of 3,500 manufacturers carried out by its Chambers of Industry and Commerce (DIHK) found that 16 percent were either scaling back production or partially discontinuing business operations due to rising energy prices.

German order books are still full, suggesting there will not be a significant drop in production, although fewer orders are coming in, fuelling bleak expectations for the year ahead. Moreover, according to the Munich-based Ifo Institute, around 90 percent of companies in in the electronics, mechanical and automotive industries are not receiving all the materials and intermediate products they need to run their factories.

Ti added that subdued private consumption will drag on the European road freight market in 2023, with inflation biting and higher borrowing costs stymying confidence.

The war in Ukraine is having a substantial impact on the European economies, energy supply and consequently on the road freight market. To prevent the interruption of energy supply, Germany has issued a legislative decree for its rail network, temporarily prioritising the transport of energy so as to ensure the continuing operation of power plants, refineries, and electricity grids. The measure will be in place for six months.

Considering the already high utilisation of its rail freight network, not least because of higher wheat shipments from Ukraine, the limited rail capacity might cause a shift of non-priority freight to road. Poland became the second country to prioritise coal transport by rail. Ti expects its heavily congested road network to absorb more cargo.

Driver shortages

Workforce shortages will also affect the amount of capacity available. According to TIMOCOM Freight and Cargo Exchange, in some European countries there has been a significant drop in the vehicle space being offered. One of the key reasons behind this is probably the shortage of drivers. In Germany for instance, 24 percent less capacity was posted on the TIMOCOM Freight Exchange in the first nine months of 2022 compared to 2021. A similar pattern can be seen in carrier countries including Hungary and Romania.

Among main European countries (France, Spain, Germany, Romania, Poland and Denmark) demand for drivers continued to increase (+44 percent) between January and September 2022. Every quarter, at least 6,000 new positions are being opened. Demand is expected to continue rising by 10 percent every year over the next five years.

The Russian invasion of Ukraine is further exacerbating the problem and restricts the supply of truck drivers in Germany, where migrants make up 24 percent of the driver workforce, as Ukrainian men returned home to fight. Finally, the potential threat of a new Covid-19 outbreak in the winter could also make the driver shortage even worse in 2023, said Ti.

The shortage is forecasted to be far worse in 2026, with a multiplier effect of up to seven in the case of France. Over half of truck driver positions are expected to be unfilled during the next five years, if the situation remains unchanged. In five years, around 30 percent of truck drivers who are currently over 55 will have retired, which represents a third gap to be filled in.

Soaring diesel prices appear to have come to an end for now. The most recent data shows that for the EU, average weekly diesel prices in Q3 2022 have fallen by 1.7 percent quarter-on-quarter. This represents at the very least a stabilisation of prices, however the momentum at the end of quarter appears to be heading downward, said Ti.

Despite this, the outlook for diesel prices in Europe remains very uncertain. With recent escalations in the war, the EU is set to respond with a ban on Russian crude oil imports. This could apply significant upward pressure to prices from December, when the restrictions are planned to start.