Carriers are drowning in losses, they don’t have enough orders

Despite the fact that the technical recession has ended and inflation has decreased significantly, the road sector, which handles about 80 percent of goods traffic, is still drowning in losses because there are not enough orders – this is what the strategic consulting company DigiLog Consulting published in April 2023. in the expert analysis of the quarterly Road Transport Price Index (KFX 23Q4).

According to the report, the dismal results of the carriers are a direct consequence of the unfavorable macro-environment.

  • Although domestic consumption and retail trade shows an improving trend, it is still 4 percent lower compared to the fourth quarter of 2022.
  • Industrial production, which is the other major commodity base of transportation, fell by 7.4 percent compared to the same period of the previous year with a negative trend.
  • The deterioration of the trend was indicated by the negative turn of the product foreign trade balance in December, according to which exports decreased to a greater extent than import turnover. These volume decreases very sensitively affect our international carriers, who reach the EU markets with exports, and after that – some third-country after completing the transport – they return home with imports.

Expenditures

Although the carriers made refueling about 2.4-2.6 percent more expensive compared to the previous quarter, it was still at least 10-15 percent cheaper than in the third quarter of the previous year. This significant saving contributed significantly to softening the intense rise in other cost elements.

Despite their cost-cutting measures, trucking businesses have seen everything but fuel increase their costs, including driver wages, tolls, vehicle financing, and parts and service costs. the most significant price increase is the 17.6 percent increase in the domestic toll,which alone would have necessitated a 2.2–3.1 percent freight rate increase from 10/01/2023.

Overall, in the fourth quarter, a total cost increase of 5.1 percent in international transportation and 5.4 percent in domestic transportation can be measured compared to the previous quarter, while compared to the same period in 2023, the increase is 9.4 and 8.2 percent, respectively.

Efficiency, productivity

The efficiency and productivity indicators of the road subsector also deteriorated in the last quarter of last year, which is mainly due to the low order backlog. The mileage of the trucks decreased and the rate of empty runs increased. These declines in efficiency and productivity further increase the carriers’ cost per kilometer loaded.

Exchange rate

The exchange rate of the forint compared to the euro has a significant impact on the efficiency of international transport, as the majority of revenues are generated in euros, while the majority of costs are generated in forints. The strengthening of the forint increased the cost of transport activities by 0.2 percent compared to the previous quarter, and by 2.2 percent compared to the third quarter of 2022.

Demand – supply – price

It is true that compared to Q3 2023, the carriers achieved some increases, but this could not compensate for the increase in their costs in the fourth quarter either.

Compared to the same period of the previous year, the international carriers could have compensated for the increase in their costs and the deterioration of their efficiency with a 9.4 percent increase in their fees, while their domestic counterparts had an 8.2 percent increase, but their fee levels were 2.7 and 8.2 percent, respectively. It decreased by 3.7 percent. Thus, on an industry average, both the international and domestic segments of road transport produced a loss in 2023 IV. quarter, from which only very specialized activities could be exceptions.

The drop in fees is due to excess capacity. In the short term, the carriers were unable to adjust their capacities to the reduced freight traffic due to the recessionary environment, and this is reflected in the drop in prices.

Outlook for 2024

The recovery of our economy from a technical recession, the drastic reduction of inflation and the slow rise of retail sales are very promising signs of the approach of economic growth. However, the weakening of the German economy, where industrial production has been falling for the sixth month, can cast a serious shadow on their growth prospects.

Although low inflation may slow down the rise of some transport costs, a brutal increase of up to 50-60 percent on average has come into force in the domestic toll, and up to 80-85 percent on average in the German toll, and in Hungary since 01.01.2024 the diesel excise tax. The general rise in prices and the aforementioned tax increases may even cause an additional 16-21 percent increase in costs this year.

Passing this on is a very serious challenge for hauliers in a road haulage market struggling with excess capacity. Prolonged unprofitable operations can accelerate the downsizing of trucks and the number of bankruptcies, which in turn will cause a serious lack of capacity once the recession is over.

author avatar
Barack
As an experienced journalist, expert in useful tips, I have a passion for providing valuable information and practical guides to a wide audience. My articles are characterized by thorough research and verification of reliable sources that ensure the quality and accuracy of every information I provide
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