Year starts with strong capacity growth and a decline in prices

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The thirty-fifth edition of the Transport Market Monitor has been published. The TMM is a quarterly publication by Capgemini Consulting in collaboration with TRANSPOREON, a logistics platform that connects shippers from industry & trading companies with carriers, drivers & consignees. The index development reflects the expected yearly pattern, with slight differences of the individual index levels. In this first edition of 2018, especially the capacity index increased significantly, reaching the same level as the last years for Q1. The yearly pattern is expected to continue during the next quarters as well.

The Transport Price Index dropped from Q4 2017 to Q1 2018 by 14.7%. Although the price level is higher than in Q1 2017 (+ 7.1 %), the level is very similar to the previous years and shows a comparable development as well.

At the same time, the Capacity Index has recovered from the very low level during Q2, Q3 and Q4 of 2017, and increased from Q4 2017 to Q1 2018 by 53.3%, reaching a similar level as in Q1 2017. Comparing the monthly Capacity Index values from Q1 2018 with Q1 2017, the level and development comparing each month is the same.

The increase of the Capacity Index from Q4 2017 to Q1 2018 is the highest increase of the Index from one period to the other ever observed, reflecting the very scarcely available capacities during 2017. This was especially the case around the end of 2017, where the assumption was that capacity scarcity is the result of the high usage of parcel shipments due to e.g. Christmas season. The development indicates that this high demand and the resulting capacity constraint is limited to the end of year business, and with Q1 the usual yearly pattern of a comparatively low Capacity Index and an increase until the end of the year is expected.

For Q2 2018, the expectation is a constant development of the Price and Capacity Index with a similar pattern as the previous years. The Capacity Index will decrease, while an increase of the Price index is observed. Following last year’s extraordinary development, it will be interesting to see whether the Price Index keeps increasing and reaches a new all-time high Index level. The development shows, that the critical scarcity of capacity is especially observed in an increasing manner between Q2 and Q4 of the year.

The declining overall Price Index is also displayed in the development of the Price Index of different industries. Although the patterns are slightly different; all Price Indices fell after a year-high level in Q4 2017 to a significantly lower level in Q1 2018. Comparing the yearly pattern with the last years, the current level is comparatively high across the industries, but the Paperboard/Paper material industry is not following the same pattern than the other industries or the overall Price Index.

Although the Price Index is significantly declining from Q4 to Q1, the Diesel Index displays an increase by 3%. In comparison to last year’s Index the current level is slightly higher by 3% as well. Observing a decreasing Price Index and increasing Capacity Index, for the European Trade Flow Index (ETFI) a new all-time high level is expected in Q1 2018 with an increase of 18.3% compared to Q4 2017, which would be a 7.7% higher Index than in Q1 2017. The economical patterns of increasing Trade Flow if prices decrease and capacities increase can be observed and is expected to continue in the upcoming quarter. While we expect the same development pattern as the previous years, it will be interesting to see how the volatility will develop during the rest of 2018, having faced drastic changes between Q3 2017 and Q1 2018.

A special spotlight is the development of a decreasing Price Index while the Diesel Index is increasing. This indicates a continuous declining impact of the Diesel Index. While in the past the impact on the Price Index was about 18-25%, the impact of other factors e.g. the capacity scarcity has an increasing impact on the Price Index, while the Diesel impact is constantly decreasing. The forecast for the coming months will be that although the Diesel Index is increasing, the impact on the Price Index will continue to decline. It will be interesting to see how the price develops with, for example, the changing German law for the truck road toll beginning at the 23rd of May. The different engine-classes (Euro-III to Euro-VI) will have changing costs per kilometer, favoring reduced air pollution and street load (considering the weight and number of axles). The hypothesis is that the prices for transportation increase, irrelevant of the development of the Diesel Price Index, due to regulatory changes.

The coming Transport Market Monitor, with figures regarding Q2 2018, will show if the expectations of the Diesel Index development and impact will be confirmed, and particularly whether the upcoming German truck road toll will have had a measurable impact on the European transportation industry in the coming months.

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