21/09/2022
09/21/2022 | 6 min
Adrian Gonzalez,
President of Adelante SCM
We have all been living in interesting times since 2020, starting with the COVID-19 pandemic, which is still with us, through the current Russia-Ukraine war. The reality, however, is that uncertainty is not something new that we have to deal with. It has always existed and it is here to stay.
If you work in transportation, you already know this is true. It is a market that goes through cycles continuously, and there are many factors and variables that impact it, many of them outside our direct control.
“Global growth is expected to [decrease] from 5.7 percent in 2021 to 2.9 percent in 2022— significantly lower than 4.1 percent that was anticipated in January.” World Bank’s latest Global Economic Prospects report, June 2022
Growth expected to hover around 2.9% over the next two years as activity, investment and trade feel the impact of the war in Ukraine – source: World Bank
French economy predicted to grow 2.3% this year, down from 3.4% forecast in March – source: Bank of France
Forecast economic growth in 2022 cut to 1.5% by Germany’s BDI industry association, down from 3.5% forecast before Russia-Ukraine began – source: Reuters
In addition, Reuters reported that Euro zone inflation rose to a record high 8.1% in May, more than four times the European Central Bank's target. According to the article, “While a 39% rise in energy costs was the main driver of inflation, unprocessed food prices were up 9% and non-energy industrial goods prices rose by 4.2%. The price of services, where wages are a key cost, rose by 3.5%.”
Inflation in the UK is even worse, reaching 9.1% in May, a 40-year high. According to a CNBC article, “Along with the external shocks facing the global economy — such as food and energy price surges amid the war in Ukraine and supply chain problems due to lingering Covid-19 pandemic bottlenecks — the U.K. is also navigating domestic pressures, such as the unwinding of the government’s historic pandemic-era fiscal support, and the effects of Brexit.”
At the time of recording for the July edition of Transporeon Journal, I took a look at diesel prices on Transporeon Insights. This metric shows the pump price in Euros (inclusive of all taxes) for one litre of diesel fuel in the origin country of the lane selected. The diesel price is updated once a week. Over the past 13 months, for example, diesel prices have increased 75% in Russia, 74% in Austria and Bulgaria, 72% in Spain and Latvia, and 70% in Romania.
As we enter the busy fall shipping season, the uncertainty and disruptions continue.
Shippers and carriers are still dealing with the aftereffects of the lockdowns in China due to COVID. Bloomberg reported that,“Empty container boxes crucial for Asia’s exporters are getting stuck in the port of Rotterdam as a growing backlog of undelivered goods at Europe’s export hub forces ocean carriers to prioritize shipments of filled boxes.”
Labor strikes at the ports of Hamburg and Antwerp in recent weeks added to the operational challenges these highly-congested ports already face.
Despite signs in the US that truckload capacity is loosening up and rates are coming down (especially spot rates), capacity in the European market remains constrained and contract and spot rates are still increasing in most lanes.
Looking at the Capacity Index on Transporeon Insights on the morning of the recording, the index was 85.93 in May 2022 compared to 89.16 in May 2021. A reading under 100 indicates a capacity constrained environment.
Year-over-year, the index has decreased 3.23 percent
Compared to January 2022 when the index was 87.9, it has decreased 2 percent
This is contributing to higher spot and contract prices. The Spot Price Index, which tracks the spot rate across 70 major lanes in Europe and weighs each lane according to its transport performance, was 143.1 in May 2022 -- a 27% increase from May 2021.
And the Contract Price Index, which tracks the contract rate across the same 70 major European lanes, was 120.7 in May 2022 -- a 20% increase from the previous year.
For example, on the morning of the recording I looked at the Germany-to-France lane and saw that the Spot Rate was up 30% year-over-year and the Contract Rate was up 22% year-over-year. The data also showed that the Contracted Load Rejection Rate was at 19% (five points higher than a year ago), and that the Spot Offers Index was more or less at the same level it was a year ago (71.85). From this I could conclude that about 28% less carriers were making offers for spot loads on that lane.
It means that we’ll continue to live in interesting times. That the market will remain volatile and uncertain for the foreseeable future.
It means that days of “setting and forgetting” your transportation strategy and routing guide are over, at least if you want to remain competitive. The same is true for carriers and freight forwarders when it comes to their pricing and go-to-market strategies.
And it means that the time is now for data-driven decision making in transportation.
The good news is that for companies that are willing to become more data-driven in transportation, the data and tools already exist to get started. For shippers, real-time market data and intelligence helps you to answer important questions, like:
How do my contracted rates compare to others in the market? How do they compare to spot rates?
Are my tender rejection rates higher or lower than other shippers?
Are spot rates (and spot offers) trending up or down in a given lane? How about contract rates?
Do I need to secure capacity in new lanes and/or new modes in response to market events?
This type of benchmarking is also very valuable for carriers and logistics service providers, particularly when it comes to evaluating and updating their pricing strategy for spot tenders and contract rates. Just like shippers, carriers and logistics service providers have questions they want to answer, like:
What rate should I offer for this spot load? Are my rates competitive on this lane? Where are the best opportunities to increase margins?
For example, if you look at the new Rate on Demand service on Transporeon Insights, it predicts all-in buy rates for full truckload transports on the spot market.
The service takes in a variety of transport parameters -- including postal codes, loading and unloading times, vehicle type, industry, and loading/unloading stops -- and uses a machine learning model that accesses all of the data on the Transporeon platform to predict prices in most of the EU-28 countries.
As an example, for a full truckload spot shipment to load in Ulm (Germany) on July 4th and unload in the following day in Amsterdam, the Rate on Demand feature estimates it would cost around 1,109.59€.
This is just one example of how when you layer business intelligence, analytics, artificial intelligence, machine learning, and visualization tools on top of real-time market data, you open the door to new insights about the transportation market and your operations.
Adrian Gonzalez is a trusted advisor and leading industry analyst with more than 20 years of research experience in transportation management, logistics outsourcing, global trade management, social media, and other supply chain and logistics topics.
In addition to launching Talking Logistics, Adrian is the founder and president of Adelante SCM, a peer-to-peer learning and networking community for supply chain and logistics executives and young professionals. He is also the founder of Indago, a market research service that brings together a community of supply chain and logistics practitioners who share practical knowledge and advice with each other while giving back to charitable causes.
