Inflation and the rise of prices in express transport

Raging inflation and rising energy and fuel prices are affecting the growth of transport costs. Transport prices in Poland increased by 16.4% in September, and the overall inflation rate was 17.2% year on year. Rising freight prices, in turn, are driving inflation, and so the circle is closed. Will the transport situation begin to stabilize and when?

Galloping inflation and rising transport costs, among others, in the form of a fuel additive used by many transport companies, give entrepreneurs in Poland and abroad sleepless nights. The world economy creates a complex system of connected vessels which is why specialists see the sources of the current difficult situation in many factors, as well as in the events that we have witnessed recently.

Supply chain continuity problems and the related crisis have become the main drivers of freight prices in recent years. Their sources can be seen in the difficulties and limitations caused by the COVID-19 pandemic. Now, after two years of supply chain crisis, rates are starting to stabilize. According to Freightos, seafreight rates, which had reached record increases since the pandemic, fell 18% to $ 3,320 / FEU in October, mainly due to falling demand in Europe and the Trans-Pacific area and easing congestion at US west coast ports – which increases the available bandwidth. This is the lowest rate since December 2020, 68% lower than last year, but still 170% higher than in October 2019.

This is an important trend because the analyzes of the International Monetary Fund covering the last 30 years and data from 143 countries indicate a clear relationship between an increase in freight rates and inflation. It turns out that doubling the rates causes an increase in inflation by about 0.7 percentage point, and this effect lasts up to 18 months. The inflation increase that we are currently observing is therefore certainly related to, inter alia, with a sharp increase in transport costs in 2021. It is estimated that they may increase the current inflation by as much as 1.5 percentage points. Moreover, experts believe that the record prices of freight rates at the turn of 2021/2022 will be felt most strongly not until the winter of 2023, therefore we will have to wait for the first effects of the drop in freight prices.

Especially that this year the transport industry, including express transport, is experiencing further problems that have a significant impact on transport rates. Undoubtedly, one of the most felt is the energy crisis related to the war in Ukraine. Already in 2021, rising fuel prices resulted in an increase in freight prices, reaching up to 20% year on year in some months. Government solutions (including the anti-inflation shield) at the beginning of 2022 allowed business a short break, but immediately after the outbreak of the war led to further sharp increases in fuel prices. Analysts from TI and Upply estimate that the price of fuel today could account for as much as 50 percent of carriers’ costs, compared to about one-third before the pandemic.

In addition to the rapidly growing expenses related to the costs of running a business, Polish carriers struggle with difficulties in finding hands to work. The lack of drivers, which has been felt for years, intensified at the beginning of the year with the outflow of Ukrainian workers. It is estimated that among the main European countries (France, Spain, Germany, Romania, Poland and Denmark), from January to September 2022, the demand for drivers is constantly growing (according to the IRU report, by as much as + 44%). The forecasts are not optimistic – according to experts, the shortage will be much greater in 2026. This situation requires employers to raise wages. In February this year wage growth was 12.4% year on year.

New EU regulations related to the mobility package, which imposed new obligations on carriers transporting vehicles up to 3.5 tons, did not make things any easier. This was also reflected in freight prices. As are the soaring prices for ferry crossings, which for some routes account for a significant part of the costvand therefore the freight rates.

Europe as a whole is struggling with inflation and rising prices, although smaller interest rate hikes in the third quarter for both spot and contract transactions mean that the European market has adjusted to higher costs, while higher production costs and lower consumer purchasing power have started to ease the pressure on the increase in demand for rates. Due to rising energy costs and uncertainty in energy supply, the German industrial sector is experiencing difficulties. The shrinking manufacturing sector is the first sign that German industry demand for transport services will start to decline. Production downtime due to huge increases in energy prices is also possible in the UK which will reduce the need for transport.

It is a fact that European rates for international road transport reached a new peak in the third quarter of 2022. On some routes, drought and the associated reduction in river transport capacity also contributed to this, which automatically increased the demand for road transport. The average index of transport rates per 1 km in Europe increased by 7% in 2022 compared to 2021. The average rate in FTL transport between Poland and EU countries increased by 4.4% compared to the previous year. However, according to experts, with the vision of a harsh winter ahead of us and a decline in volumes, freight rates should decline gently by the end of the year. However, it should not be forgotten that at the beginning of 2023, the rates of VAT and excise duty on energy and fuels in Poland may return to the baseline levels, so the downward trend in our country is still under question.