News / Europe's road freight spot rates drop below contract rates

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European road freight spot rates have fallen below contract rates for the first time in seven years.  

A recent update from the IRU, Transport Intelligence (Ti) and Upply explained that falling spot rates have been driven by declining industrial demand, while contract rate rises have been prompted by new emission tolls and general cost growth. 

The update said: “Contract prices are climbing above spot rates from Germany to Paris, Birmingham, Milan, Lille, Madrid, Rotterdam and Antwerp.” 

The European Road Freight Spot Rate Benchmark Index for Q4 23 stood at 123.8, 4.5 points lower than in Q3 23 and down 14.8 points year on year.  

In comparison, across the same period, the European Road Freight Contract Rate Benchmark Index stood at 129.4, which was 1.7 points higher than in Q323 and 0.9 points less than in Q4 22. 

Thomas Larrieu, CEO at digital freight solutions platform Upply, said: “At the start of 2024, shippers now have access to spot rates that are lower than contractual rates. 

“This year, road transport operators will have to cope with a fall in European demand, which has already been under way for several months and with the unpredictability of their costs.” 

Economic analyst at Ti Nathanial Donaldson noted that since rates spiked in H1 22, plummeting consumption triggered by inflation had been the primary catalyst for consistent spot rate falls.

However, in the new climate of diminished inflation, consumption has settled at lower levels and the main driver has switched to production. 

“As we have settled in lower levels of consumption across the continent, production is now adjusting to lower levels of demand. We’ve got countries like Germany seeing its reduced competitiveness on the international markets,” explained Mr Donaldson.  

Industrial output was down quarter on quarter by 1.6% in Germany, 0.9% in the UK and 0.2% in France. 

“Consumption is actually looking quite stable, but at lower levels,” Mr Donaldson concluded.  

As a result, total demand for European road freight has continued to fall – freeing up more capacity and pulling down spot rates further. 

Furthermore, the cost of owning and operating a truck has been increasing. The IRU, Ti and Upply found that over the last three years, labour costs have increased 28.2%; maintenance and repair have increased 20.4%; tyres by 21.6%; and insurance by 8.7%.  

However, the Q4 European Road Freight Rate Development Benchmark warned that the increase in road tolls would have the biggest effect on costs. New emission-based tolls are expected to be particularly disruptive.  

Germany’s new emission-based tolls came into effect on 1 December and the IRU said this had increased tolls for HGVs on German roads by some 80%. 

IRU associate director of strategy and market intelligence Marie-Anne Cervoni urged: “This is not a temporary spike – the tolls will add significant costs.” She said this would “without a doubt push up contract rates in the coming months”. 

The IRU, Ti and Upply said: “While the objective of the new tax is to speed up the transition to emission-free vehicles, the fuelling and charging infrastructure is still underdeveloped.” 

As a result, rising costs are being passed on to customers on contract, allowing them to push up longer-term rates. 

However, the IRU, Ti and Upply warned that where this was not possible, it would have to be absorbed by carriers, raising costs and reducing already tight margins.