Career
Over recent months, supply chain players have had to contend with a wide range of legal, environmental, political and social issues. AsstrA's analytical division shares which of these issues have had a key impact on the logistics market in the second half of 2022.
Transport rates up
Every year, logistics activity peaks during the fourth quarter. During this time, the number of transportation orders and prices for their fulfillment increase. In 2022, rising fuel costs, a shortage of drivers, and Russia’s invasion of Ukraine further contributed to rate increases. In the busy pre-holiday season, the availability of transportation services also decreases. In 2022, however, TIMOCOM saw the opposite trend, with reduced European production leading to greater available capacity and fewer bottlenecks.
In the second quarter of 2022, average freight rates increased by more than 45% compared to the first quarter and remained at the same level in the third quarter. As predicted, in the fourth quarter there was a 3% increase vs. the second quarter.
In the third quarter of 2022, contract rates reached 129.7 index points, a increase of 5.4 points vs. the previous quarter and an increase of 19.6 points vs. previous year. Spot rates were 142.6 points, an increase of 6.0 points vs. the previous quarter and 26.4 points vs. the previous year.
A decrease in trade and production in early 2023 may lead to a slight reduction in transportation rates. However, this decrease may be offset by changes in fuel prices due to the extension of the EU embargo on imports of petroleum products from Russia. The prohibition will take effect on February 5, 2023. It is also difficult to predict how much inflation will increase.
Economic slump in Europe
In September, the manufacturing sector experienced an economic downturn with a further decline in demand and increased price pressure. S&P Global’s Eurozone Manufacturing Purchasing Managers Index (PMI) fell to 48.4 from 49.6 in August, indicating a decline in production in the eurozone.
At the end of the third quarter, the two largest EU economies, France and Germany, noted sharply deteriorating production capacity. The countries’ PMIs were at the lowest levels since the start of the Covid-19 crisis in the first half of 2020.
The number of new orders also declined in September. Difficulties in the supply chain disrupted production processes and work-in-progress declined due to lower global demand. High electricity costs caused occasional downtime in the manufacturing sector.
In November, the PMI index rose to 47.8 from October's 47.3, which had been the lowest level in 23 months after four previous months of consecutive production drops indicating, according to the PMI, a greater likelihood that the Eurozone will plunge into recession. In addition, the energy crisis in Europe, which is especially impacting the manufacturing sector, exacerbates the economic downturn.
In the fourth quarter, the increase in energy prices affected the cost burden of businesses. European companies have cut back or completely stopped production, for example in the glass industry in France, the steel industry in Spain, and the fertilizer sector in Poland. The threat of corporate insolvency is growing.
According to the December 22, 2022 World Trade Organization Services Trade Barometer, services trade declined in the fourth quarter and is likely to remain weak in early 2023. The Barometer index for October fell to 98.3, which is slightly below the base level of 100 and significantly lower than its previous level of 105.5 in its last publication in June. Financial services (with an index of 107.8) were the most resistant to the slowdown in the global economy. The indexes for passenger air transport (105.2) and information and communication services (103.2) were above the downward trend. The largest decrease was recorded in construction services, container transportation, and PMI with indexes of 92.9, 92.8, and 91.1, respectively.
Trade turnover down between the EU, Ukraine, and the CIS
In the third quarter of 2022, the volume of road transport of goods from the European Union to the CIS was 1% lower compared to the second quarter and 16% lower compared to 2021. Exports of goods from the EU to Russia decreased by 26% quarter-on-quarter. In contrast, exports to Belarus increased by 3% quarter-on-quarter while exports to Ukraine increased by 21%. The flow of goods from Europe to Kazakhstan decreased by 8% and to Uzbekistan decreased by 4%.
Imports of goods from CIS countries to Europe decreased by 1% quarter-on-quarter, and 38% year-on-year. Quarter-on-quarter, imports from Russia fell by 65% quarter-on-quarter, from Belarus by 71%, from Ukraine by 26%, and from Kazakhstan by 63%, while imports from Uzbekistan increased by 31%.
The reduction in trade between the EU and Russia and Belarus has freed up capacity on these routes, which can be used for more shipments to Uzbekistan, Kazakhstan, and Ukraine.
Inflation still high
Consistently high inflation puts pressure on transportation costs. In November 2022, the annual inflation rate in the eurozone was 10.1%, compared to 10.6% in October. A year earlier, this figure was 4.9%. The rate of inflation slowed slightly in the last months of 2022, but remains at the highest levels in 10 years.
The highest annual rates were recorded in Hungary (23.1%), Latvia (21.7%), Estonia and Lithuania (21.4% each), the Czech Republic (17.2%), and Poland (16.1%).
In the eurozone in November, prices were up for energy (+34.9% compared to +41.5% in October), food, alcohol, and tobacco (+13.6% compared to +13.1% in October), non-energy manufactured goods (+6.1%, the same as the previous month), and services (+4.2%, down from +4.3% in October).
Rising diesel fuel prices
According to the French National Road Committee (CNR), the average price of diesel fuel in Europe was 1.94 euros per liter in the fourth quarter of 2022,. Prices remained the same compared to the third quarter of 2022, but increased 60% compared to the fourth quarter of 2021.
On December 3rd, the EU Council set the maximum price for Russian oil at $60 per barrel. The restriction went into effect on December 5th along with the embargo on Russian oil supplies to EU countries.
The price limit mechanism will be reviewed every two months, starting in mid-January 2023. The limit will be set at least 5% below the average market price of Russian oil and oil products. A similar prohibition has been imposed by the G7 countries (Great Britain, Germany, Italy, Canada, France, Japan, and the United States) and Australia.
Current oil market conditions will likely to lead to higher fuel prices starting in the second quarter of 2023. However, the increase may occur in the first quarter of 2023 and drive up transportation costs.
A dramatic shortage of drivers
The International Road Transport Union (IRU) has published a report on the shortage of drivers around the world.
The shortage of truck and bus drivers in Europe is almost at a crisis point. Demand for transport is growing, and there is little interest among young people in this profession. It is expected that by 2026 the number of job openings for truck drivers will increase by over 60% as logistics companies struggle to find carriers.
Author: Kamila Rynkiewicz.
