Road transport – calm before the storm

There is a lack of trucks available on the market. This is experienced by shippers, logistics operators and forwarders Transport service providers will be able to respond to the demand? How will demand for transport services respond to availability constraints? The market abhors vacuum. It was cheaper – now it will be expensive. It is worth to take this into account, to include it in your plans for the next month and to make appropriate adjustments.

The year 2020 will certainly go down in the history. The black character will of course be the coronavirus, and “pandemic” has the chance to become the word of the year. Since covid19 came and settled for good in Europe (and not only) we can observe large fluctuations in the economy. This is directly related to the crisis caused by the virus and its direct consequences, which undoubtedly include restrictions, bans and lockdowns in individual countries. The economy of the 21st century is a complex system of connected vessels, so changes in demand/supply are dynamically reflected both in the whole economic systems and at the level of individual industries.

The industrial production data for the last 12 months (October 2019 – September 2020) clearly shows that the first wave of the pandemic swept through Europe in March and April 2020 leading to a significant drop in production.

The decrease is even clearer when we look at industrial production data comparing it to the same month of the previous year M/(M-12). In April 2020, industrial production in the EU(27) was 28.4% lower than in April 2019. Although there was a clear rebound, we are still below last year.

Graph: Industrial production in the EU(27) and Eurozone – Index 2015=100, source:https://ec.europa.eu/eurostat/databrowser/view/teiis080/default/line?lang=en

graph: Industrial production in the EU(27) and the Eurozone – percentage change M/(M-12), source:https://ec.europa.eu/eurostat/databrowser/view/teiis080/default/line?lang=en

And a quick glance at the long term 2010 – 2020. It doesn’t look good…

graph: Industrial production in the EU(27) and Eurozone – Index 2015=100, source:https://ec.europa.eu/eurostat/databrowser/view/STS_INPR_M__custom_225786/default/line?lang=en

So let’s look at the two EU countries with the largest economic exchange, Poland and Germany. While our western neighbours are seeing a positive recovery, it is still much worse than in 2019, which … due to the decline was the worst in 10 years.

When we think that we are already at the very bottom and there is nothing underneath, unexpectedly the covid19 knocks from underneath.

Poland, on the other hand, with the exception of the period March – June 2020, has recorded an increase compared to the corresponding months of last year. This is good news.

Of course, we still do not know how much the economy will be affected by the second wave of the pandemic, which is rolling like a roller across Europe. We will have to wait for this data.

Is road transport resistant to the crisis caused by the coronavirus pandemic?

You are probably curious about how it looks like in the road transport industry. The shift is clearly noticeable. Let’s take a look at the data provided by https://metrix.trans.info/. Let’s focus on relations from Poland to Germany – as I have already mentioned, there is the largest economic exchange between these countries in the EU.

Fuel prices remain low and can be considered as stable. The signals coming from the world markets also do not herald oil price increases, which have been at the level of USD 40-45/bbl for about 6 months.

The PLN/EUR exchange rate makes settlements in this currency attractive for Polish entrepreneurs selling intra-community/settlement in EUR. Large short-term fluctuations of the PLN/EUR exchange rate and high volatility on global markets may be of concern.

Is it also good news that availability of free vehicles seems to be stable? After all, little has changed for several months. The calm is apparent – like the calm before the storm…

If it is so good, why is it so bad?

There are many indications that the availability of free vehicles is already at a record low level and may result in a dynamic increase in rates. A very uncertain turn of the year is ahead – there may simply be no available vehicles.

 The lack of free and available vehicles is already being experienced. The market for the supply of transport services is definitely not coping with the response to demand. The demand for transport services has increased while the capacity remains unchanged, and unfortunately there is no indication that the supply of spare capacity will increase in a short time (this is simply not possible due to the inertia of this industry).

 Let’s see what the next data says. Again https://metrix.trans.info/ comes with help. The demand for transport services clearly collapsed at the end of 2019 (crisis caused by the beginning of the pandemic in China) and after reaching bottom in April 2020 (the pandemic reached Europe) it started to grow significantly. This may indicate the adaptation of the economy to new operating conditions.

The freight rates are very similar and follow the demand, so they are increasing. It was already cheaper, the cheapest in spring 2020. December 2019 is clearly marked. This is the period of last year’s Christmas peak, in which due to shopping and consumption madness, the rates are usually higher to stabilise in January. The collapse came in March and lasted about two months with the first wave of covid19 and the first restrictions, prohibitions and lockdowns.

November 2020 ends. Rates are at the level of the Christmas peak from the previous year. December 2020 could therefore mean further dynamic growth. It is worth taking this into account, planning for the next month and making appropriate adjustments in advance. There is little time left. Otherwise, it may be very difficult to find a vehicle.

 At the beginning of each calendar year we could usually observe a slowdown – the logistics industry seemed to be resting after the Christmas peak. There are many indications that the next few months may look quite different – the market is facing a period of further turbulence, dynamic changes and instability. It will concern both the availability of free vehicles (capacity), freight rates and cargo volumes generated by individual sectors of the economy.

 In 2020, the automotive and furniture industry slowed down significantly (-72% and -45% respectively), while at the same time we can observe an increase in demand for transport, e.g. in the food industry (+36%) and consumer chemistry (+32%). We will see in the future how sustainable these changes are. However, I would not expect a direct return to the situation from previous years.

I estimate that in the long run the balance sheet for the logistics industry will definitely be favourable, and the observed changes prove a high ability of market participants (logistics operators and shippers) to adapt to difficult and rapidly changing realities. However, I observe forwarders with a bit of anxiety – they seem to have not yet noticed that the world in 2020 has significantly accelerated and they seem to be convinced that their efficiency (finding a carrier at the lowest price) results from the efficiency of using e-mail or phone. Such a strategy may still work for some time… but there is little time left for transformation.

At the same time, there is still a big hidden chance to change the way carriers operate, who are still hesitating or even resisting connection to digital platforms, which in many cases makes them “invisible on the market”. Their inaccessibility results directly from hiding behind the work (often manual) of the aforementioned forwarders and the feeling that “this is good”, “otherwise it is impossible”.

It has to be said openly – they (forwarders and carriers) have to give up their old habits as soon as possible, otherwise they will disappear from the market or in a more optimistic variant – they will face considerable operational problems resulting from the chronic data flow. In their case, development must mean a response to the needs of shippers. This requires recognition of their requirements in the context of digitisation. Openness to delivering data to logistics platforms by integrating their TMSs with platforms to which many market participants have access will lead to greater predictability and enable more stable transport operations. It will be more efficient and faster… much faster.

 The managers responsible for the development and implementation of transport strategies have to be flexible in their models and tools. The use of island ERP systems, even when they are connected to bidding or auction systems, is losing ground. The advantage can be built by connecting to the transport community (instead of with a selected group of own subcontractors). And this is not about replacing existing carriers with new ones, but about the potential that can be drawn from access to data (automation of work, flexibility in accessing carriers during seasonal peaks, effective management of information based on data from outside your own circle of subcontractors).

Everyone who is present in the road transport industry in Europe, regardless of their role – whether they are carriers, freight forwarders or maybe shippers – should work towards greater flexibility and agility – automating and digitizing processes by combining their own systems with platforms that give access to the industry’s communities.

The question is whether and when we can expect longer stabilization? We do not know this yet, but the stubborn persistence in models of cooperation with carriers, which have proven their worth for several or more years, will lead directly to a loss of resistance to further unavoidable changes in the supply chain. I believe that the year 2021 will be marked by even more dynamic transformations.

The latter element seems to be particularly important, which can be implemented on the basis of data about cargoes and free vehicles (location, place and time of planned unloading).

The market will find effective solutions, often very surprising. If we are not a participant, we may be pushed out of it. Therefore, it is worthwhile to envisage actions for 2021 to integrate systems and use the potential of automation of operations, which today are repeatedly performed manually. With such plans in the long run we should think optimistically about changes.