The thirtieth edition of the Transport Market Monitor delivered yet another strong indication of increasing competition among transport companies. The price index decreased while an increasing capacity index indicated more available capacity in the market. Although one could argue that this is a usual seasonal effect, I would like to highlight three aspects that illustrate the difficult situation transport companies are currently facing.
First, compared to the same month in 2015, all months in 2016 showed a decrease in the price index. On average, the price index in 2016 is 5.2% lower than the previous year. 2015 was a good year for the transport companies as Q2 saw a record high in the price index. Nevertheless, considering the recovering diesel index combined with the dropping price index, transport companies are currently under pressure.
Second, in December we saw that capacity strongly increased compared to both November 2016 and December 2015 (+3.4% and + 29.0% respectively). However, in Q4 2016 trade volumes were expected to increase by 3.2% to €2.128 bln in Europe. Increasing trade volume should lead to less available capacity and not more. This is a strong indication for too much capacity in the market, which in the end puts even more pressure on transport companies’ margins.
Last, the fourth quarter of 2016 saw a transport price dynamic (difference between highest and lowest price offered) of 21%, which is the strongest dynamic for a fourth quarter since 2008. Margins within the transportation industry are very low and volatile – declining prices are therefore indicating a tough fight for market shares. Companies are apparently willing to accept unprofitable loads in order to secure market share and cash. This behavior forces the market to react and puts even more pressure on pricing.
All in all, freight forwarding companies are facing difficult times and the rise of smart startups, such as on-demand delivery and freight matching platforms, are further complicating the situation. Billions have already been invested1 and both transport and freight forwarding companies, more than ever, need to join the digital revolution now. With stagnating prices, cost leadership and process efficiency are the key to success and the digital transformation is thereby the enabler. I am looking forward to hear your opinion regarding these interesting topics. Feel free to contact me!