European road freight rates caught between rising costs and weak demand

By Alexander Whiteman[1] 04/02/2025

Spot rates on European road freight routes may finally be reaching their nadir, after having dropped against the market in contract rates. Over 2024's final three months to December, spot rates remained relatively stable, following a three-year period of collapse from their Covid-induced high, according to the latest European Road Freight Rate Benchmark, provided through a collaborative Upply x Ti x IRU effort. Based on Upply's analysis of over 750m prices, Q4 spots hit 123.9 points, a rise of 0.5, quarter on quarter, but they were down one point, year on year.

Ti's data and modelling manager, Nathaniel Donaldson, said the one point year-on-year decline was "a result of a larger, longer and shallow, gentle decrease in the spot index". However, he added: "Low demand and cost pressures have allowed rates to settle at a somewhat higher level than in recent years, but at a lower level than the spike we saw in 2022. "Demand pressures are really quite weak, but at the same time, we also see costs and really low profit margins appear to be causing some increase in volatility in the short term.

So, if we look at the overall trend of the spot market, it might just be about bottoming-out now." And despite the downturn in spots, the market remains some 15 points up on pre-pandemic levels. Average spot rates in Europe pre-Covid hovered between 100 and 110 points, before surging to that Q3 22 peak, preceding a massive drop over the subsequent four quarters.

Since then, the rate of drop has been markedly less severe. And, if Mr Donaldson's estimations are accurate, "bottoming-out" anywhere above 120 would show a massive gain on the pre-pandemic market. All of which has helped sustain growth on the contract side, which experienced a far gentler decline after the lockdowns across Europe and, like spots, contract rates have posted two successive quarterly increases, and have been above the spot market for seven consecutive quarters, latterly hitting 128.9, to leave them five points up on spots.

Against Q3 24, European contract rates were also up  in Q4 by 2.8 points, and while being down 1.4 points year on year, there was a general sense that the situation was improving, the report suggesting "European road freight is gradually recovering after a significant decline". The report added: "It is expected the demand landscape throughout the continent is shifting in line with nearshoring requirements, which can have an upwards pressure on rates." "Demand for new capacity has cooled after a period of disruption, so it is not expected to put pressure on rates in the short to medium term.

However, CO2 regulations will drive a further increase in zero-emission vehicles in the long term." Broken down regionally, routes between France and Germany and Germany and Poland reflected the general market, with both lanes reporting upticks in contract and spot rates. However, elsewhere, the situation was a little more mixed, with France-to-UK contract and spot rates dropping 8.2% (to EUR2.81 per km) and 6.3% (to EUR2.99 per km), respectively, quarter on quarter.

And while the UK-to-France drop  in spot prices was even sharper, at 6.9% (to EUR1.65 per km), there was actually a slight increase in contract rates, up 0.6% (to EUR1.69 per km) quarter on quarter. Upply CEO Thomas Larrieu said: "European road freight rates are caught between rising costs and weak demand. "While low consumer spending is preventing prices from climbing too much, high labour costs and limited capacity are keeping them from dropping.

In this context, even small cost increases or supply chain disruption can push rates up, even though demand remains fragile"

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References

1. ^ Alexander Whiteman (theloadstar.com)
2. ^ Air Charter Service (www.aircharter.co.uk)