The first quarter of 2022 will be heavily influenced by the effects of the Russian war in Ukraine. Sentiment among companies has plummeted throughout Europe. Demand for transport services remains high. However, rising energy prices are having a massive impact on road freight transport. The sector is facing immense challenges.
Demand for cargo space is greater than supply across Europe
While business sentiment experienced a new upswing at the beginning of the year, expectations were revised downward due to recent developments related to the Russian war in Ukraine. The economic impact was also reflected in the transportation market. Overall, the number of freight offers in Europe fell by 4% in the first quarter compared with the previous quarter. The reason for this here is the decline in freight offers in January (-8%) and February (-12%).
In March, freight advertisements and thus demand for transport capacity rose again by 42% across Europe. This is because the supply of freight space became tighter due to the economic impact – primarily rising energy prices. Demand for cargo space in the first quarter of 2022 is significantly higher than supply across Europe. On average, the ratio between freight and cargo space offers was around 70:30. This picture is also reflected in the domestic German transport market, for example. Demand is consistently greater than the supply of cargo space (see chart).
Differences in the ratio between countries
Some relations, however, show a completely different ratio: The supply of cargo space from Germany to Italy has developed in the first quarter after an initially balanced ratio to a significant increase in cargo space of mostly over 70 percent (see chart). “For the relationship Germany – Italy, the ongoing production bottlenecks of the German economy may have had an impact,” analyzes Gunnar Gburek, Head of Business Affairs at TIMOCOM, with regard to the declining export figures.
In the opposite direction, it could be observed that before the start of the war and the sanctions decided upon, the ratio of freight to cargo space was initially also at a balanced level between 60:40 and 40:60 percent. But then in March, the supply of cargo space collapsed and demand immensely exceeded supply: around 75 percent cargo offers against a cargo space supply of 25 percent. This is despite the fact that the sharp rise in energy costs has also hit many important sectors of the Italian economy hard. The steel industry in particular is extremely dependent on raw material reserves from Ukraine, so that almost all steel mills curtailed their production or in some cases even stopped it altogether. Apparently, other industries managed to maintain or even increase their exports to Germany, keeping demand for holds high.
Lower transport capacity due to high energy prices
Rising commodity and energy prices are having a major impact on the transport and logistics sector in all countries. In particular, high diesel prices and different price levels in Europe are hurting the mostly small transport companies and the competitiveness of road freight transport in Europe.
The fact that the share of freight offers in TIMOCOM’s system is still so high throughout Europe is due, among other things, to the significantly lower loading capacities. Due to the sharp rise in energy prices and the ongoing shortage of drivers, many transport companies have sold trucks or temporarily shut them down.
The drastic increase in energy prices (diesel and gas) and the shortage of drivers in Europe are exacerbated by the war in Ukraine. Many Ukrainian professional drivers have returned home and are missed, especially by Baltic and Polish freight forwarders and transport companies.
What does the war in Ukraine mean for the transport market?
In Poland, a direct neighbor of Ukraine, the consequences are clearly felt: as many Ukrainian drivers were working there, some transport companies lost up to a third of their staff and had to shut down part of their fleet. Since most European companies have broken off cooperation with Russian partners, demand for transport services has continued to decline. Another reason for the weak order situation is that some Ukrainian companies have ceased their business activities, i.e. they no longer order components or ship goods. This is particularly the case in the automotive sector.
Transport from Europe to Russia has come to a virtual standstill. Since mid-March, there have been practically no more transport requests to Russia in TIMOCOM’s system. Freight offers from Europe to Russia slumped by around 85% in March. This situation is not expected to change in the foreseeable future. Due to the sanctions lists, only a few products are still being delivered to Russia, and the access routes to Russia are complicated and time-consuming.
An interesting development can be observed in freight offers from Europe to Ukraine. After the start of the war, freight inquiries dropped significantly, falling by 50% overall. However, for a short time in March, they rose again slightly. “We notice that after the start of the war, among other things, transports of humanitarian goods were requested in our system and then did not take place,” explains Gunnar Gburek. Even if it seems unimaginable, production continues in western Ukraine. In TIMOCOM’s Smart Logistics system, there are still transport requests heading west, although nowhere near as many as before the war began. Overall, freight receipts from Ukraine decreased by more than 80% in March compared to the previous month.
These situations, with all their challenges, affect every country in Europe and there is no end in sight. “Europe is sticking together and facing the economic and transport challenges together. In addition, countries are also providing humanitarian aid to the people of Ukraine,” explains Gunnar Gburek, Head of Business Affairs TIMOCOM. “Almost no one would have predicted such a level of solidarity.”
First transport strikes and protests in Europe
In the industry, however, initial resistance to the impact is making itself felt. In Germany, Spain and France, there have already been initial protests against the high energy prices charged to truck drivers, which have led to brief fluctuations in freight offers. In Spain in particular, the transport workers’ strike led to a two-week truck standstill, triggering a severe economic crisis. Some industries, such as dairy, food, automotive and construction, had to temporarily suspend their operations. This was also clearly evident in freight bids, which rose from less than 10 percent to more than 50 percent in Spain during the strike (see chart). Such a development had never been seen before in Spain.
Although the government did not negotiate with the strikers, the protests in Spain were ultimately successful: the sector will receive 1.125 billion euros in compensation for the increased fuel prices. In addition to the promise of a minimum subsidy of 20 cents per liter or kilogram of fuel for diesel, gasoline, gas and the additive Adblue, direct aid of 450 million euros was promised in particular for companies involved in freight and passenger transport, as well as a doubling of funds for aid to abandon the profession of transport operator.
Financial relief to secure transport capacity
The current dynamics and make forecasting for the second quarter very difficult. However, if the negative economic impact and protests in other European countries intensify, the sector and the entire European economy will face difficulties in the second quarter of 2022. If European governments were to provide financial support and relief for the transport sector across the board, as is the case in Germany and many Eastern European countries, for example, the situation for transport companies could at least ease somewhat. Transport capacities would then probably not be reduced as much as many logistics associations fear.