The last few years have been challenging times for the transport, shipping, and logistics (TSL) industry in Europe. The COVID-19 pandemic slowed global shipping to a near standstill, and carriers have had to navigate new regulations from the mobility package, as well as a significant increase in costs. This not only pertains to fuel expenses, but extends to higher driver salaries, increased road tolls, insurance costs, and maintenance. This market situation directly impacts transportation rates. The new year has only just begun, but according to analysts the current trends in European road transport are expected to persist into the next quarter.
What are the current average transportation rates? What rates can be expected in the future? Is a further price increase realistic? Read on to find out!
Setting the rate for each kilometer traveled is a challenging task, especially during a dynamically changing economic situation across the entire continent. How to determine transportation rates per kilometer in 2024?
First and foremost, you will need to carefully analyze the costs you incur when fulfilling orders in your country. This includes, among other things, fuel costs – the price per liter in relation to the average fuel consumption of your vehicles. To hedge against price fluctuations, you can consider a fuel surcharge (more on this later in the article). You should also factor in insurance costs (third-party liability, comprehensive, carrier's liability insurance) per vehicle, as well as annual costs such as servicing and inspections of the company's fleet, tire replacements, material consumption, taxes, phone calls, parking costs, and even fees associated with accounting and legal services for the company.
Much also depends on the total labor costs you incur. Compare these costs to the number of kilometers your drivers cover annually while providing transportation services. Rates must also take into account another obvious and essential factor – profit, i.e., your margin. Too low a rate significantly reduces the profitability of orders and generated income, while too high a rate limits the competitiveness of the company.
It is worth noting the frequently used clauses that also impact how rates for road transport ultimately take shape. These adjustments aim to adapt rates to unstable and difficult-to-predict factors. The most important clauses include:
1. BAF (Bunker Adjustment Factor): The previously mentioned fuel surcharge allows for automatically modifying transportation rates, as the indicator increases or decreases depending on market fuel prices. The adjustment is calculated based on current reports from PKN Orlen regarding diesel fuel prices (average wholesale price per cubic meter in the previous month). Companies usually update data monthly or weekly. There are no strict guidelines regulating the methodology of these calculations, so companies have the right to make changes to how transportation rates are adjusted. Fuel costs constitute a high percentage of overall expenses for transportation companies, making the BAF clause crucial.
2. CAF (Currency Adjustment Factor): Not only do fuel costs undergo significant fluctuations, but the same happens in the currency market, as clearly seen in the past few years. CAF is a currency adjustment regulating rates for transportation services, calculated similarly to BAF – usually once a month, according to individual procedures for each company. A variable currency supplement is introduced to balance and adjust differences in exchange rates and mitigate the risk of losses associated with their fluctuations. To calculate the CAF index, select a relevant reference point (for example, the average annual or monthly selling rate of a given currency according to National Bank of Poland data), and then compare it with the currently applicable rate. This way, you can adjust transportation rates for a specific period.
3. Road tolls: Including road tolls in rates for transportation services is also standard. Tolls apply to specific sections of highways and national and express roads, and apply to vehicles with a total permissible mass exceeding 3.5 tons (meaning not only buses, but also cars equipped with a small trailer if their total mass exceeds this value).
Road tolls are not the only factor related to the route that have a noticeable impact on the rates transportation carriers should offer their clients. The type of route itself is also significant.This is best reflected in the average fuel consumption for a given region – traveling through lowland areas will cost significantly less than mountainous routes. It is essential to keep this in mind when setting your own rates for transportation services.
The COVID-19 pandemic was one of the biggest factors which lead to significant fluctuations in average transportation rates in Europe. Widespread lockdowns resulted in significantly lower demand for road transport, but this was only a transitional state. The easing of restrictions in 2021 allowed for economic recovery and increased consumption, consequently leading to greater demand for transportation services and a noticeable increase in rates. Political turmoil in Europe, primarily disputes over the so-called Brexit agreement, or the terms of the UK's exit from the European Union, also had a significant impact on international transport. The sharp rise in fuel prices and the shortage of drivers also had a strong influence on transportation rates. All these circumstances led to an unexpected increase in European road transport rates in 2021. Analysts already predicted at that time that further rate increases were expected due to the continuation of these trends and the gradual implementation of the mobility package regulations. These predictions proved true, and the Russian aggression on Ukraine also became a strong factor affecting the TSL industry and average transportation rates in our region. Consequently, the shortage of drivers for Polish carriers has deepened.
In 2023, the majority (78%) of logistics buyers anticipated an increase in road freight rates, with 40% expecting a double-digit rise. However, the actual trend saw a slowdown in demand, leading to a spot rate index 14.8 points lower in Q3 2023 compared to the previous year, while contract rates increased slightly by 0.4 points during the same period.
In 2024, it is predicted that road freight rates will stabilize, with a forecasted 11% driver shortage and resilient rates despite market downturns.
For the UK market, the average rate for FTL (full truckload) transports between the UK and EU countries amounted to around GBP 1,278 for contract rate and GBP 1,650 for spot rate in the third quarter of 2023, compared to around GBP 1,605 and GBP 1,960 in 2022, which means a slight decrease on virtually all major international routes.
Will the average rate continue to rise in the coming months? There are indications that it might, but there are also certain inhibiting factors, such as economic slowdown and reduced demand due to inflation. The potential seasonal return of some pandemic-related restrictions also remains a question mark, which could have a cooling effect on both transportation rates and fuel prices.
There is no doubt that the increase in transportation rates is driven by the external factors described above. What can a carrier do to limit price hikes and increase the attractiveness of their offer? A good solution is to transport goods for various clients, reducing the number of empty runs. It's also worth investing in modern solutions. Transportation planning, order fulfillment, and fleet management are areas where TMS (Transportation Management Systems) and telematics provide real support. These tools help reduce fuel consumption, provide route optimization, and accelerate communication and data flow (including information necessary for the proper settlement of national and international driver wages) in the company.
Need help finding solutions to rising transportation costs? Eurowag’s powerful fleet management tools with telematics software gives you the ability to control costs like never before. Track vehicles in real time and receive insights and information about driver performance, fuel consumption, vehicle maintenance schedules and more. Use the data provided from our fleet management packages to reduce overhead and increase profits. Our route planner also lets you optimize routes for each vehicle in real time with live traffic conditions and road closures. Add to this the savings you can get by using our Eurowag Pay app or fuel cards for authorized fuel purchases, and it’s easy to see why Eurowag is quickly becoming one of the biggest names in the European trucking and logistics industry. Contact us today to find out how we can take your company further on the road to success.
