News / Rising costs and falling demand driving Europe's hauliers out of business

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A “grim” industrial outlook has softened spot rates for European road freight – however, increased overheads means contract rates remain high, according to Transport Intelligence (Ti), the IRU and Upply’sQ3 European road freight rates index.

In a joint report, they found European road freight and spot rates had softened in Q3, due to lower consumer demand.

“Production across the eurozone is facing headwinds, with persistent declines in manufacturing activity,” it says.

The region’s purchasing managers’ index (PMI) dropped to 45 in September – “one of the lowest readings of the year”. In particular, Germany saw its PMI reach its lowest point in 12 months, at 40.6, “indicating a steep contraction”.

This is due to “continent-wide factors”, including high inflation, increased energy costs and delays caused by the Red Sea crisis, which have created a “challenging environment” for manufacturers.

“Market uncertainty” and “struggles in key sectors like automotive manufacturing” have led to “reduction in new orders, destocking, and a slowdown in production output”, it says, noting that production challenges have a direct impact on the road freight market.

“As manufacturing output declines, so does the demand for freight services, which has driven spot rates down since Q2 23 (with a brief inflection point in Q2 24),” it explains.

But despite this, elevated operational costs “prevent rates from dropping to 2021 levels, as carriers must cover their rising expenses even with softer demand conditions”.

The biggest operational costs for hauliers remain labour, fuel, insurance and maintenance, which have all risen sharply over the past two years with inflation – and still remain volatile, says the report.

Thomas Larrieu, CEO of market analytics platform Upply, predicted that because of this, even though demand is not expected to pick up, high overhead costs should mean rates remain elevated.

“We are reaching a level where the number of carriers going bankrupt is very high in Europe, and it shows that costs are higher and higher.

“We are reaching a limit where [rates] cannot go down. Maybe on certain corridors… but globally rates should be stable… and follow the increase of costs. When the demand goes up again, rates mechanically should increase to reflect that.”

However, head of commercial development at Ti, Michael Clover, pointed out that with a Trump presidency in the US, there could be updated policies lowering the price of energy and oil and, thus, “the cost base would drop”.

But he added that this was “a fair way down the line”.