UK transport rates up 15% but costs bite into profits

British road freight operators enjoyed a year-on-year rate increase of 15 per cent in January, but this is tempered by the highest fuel costs in Europe and the most acute driver shortage in 2021, according to recent industry reports.

The UK’s inflated road freight prices come within a wider context of historic rate highs across Europe, according to the European Road Freight Rate Benchmark for Q4 2021 from the world transport association IRU, logistics analyst Ti and freight price benchmarking specialist Upply.

The IRU attributes this to a “volatile mix of factors” during the course of last year, including cost increases, supply shortages, supply chain congestion and a spike in demand due to the reopening of economies in the wake of the Covid pandemic.

This propelled the Benchmark to record heights on three occasions last year, and the association said the contributing causes showed “few signs of unwinding in the immediate term”.

A separate report from the UK’s Transport Exchange Group (TEG) shows the trend continuing into January, with a 15 per cent price-per-mile increase against January 2021 for haulage and courier vehicles combined.

TEG tracks changes in the pricing of road freight services using data from millions of aggregated, anonymised transactions, calculating price-per-mile figures each month against a January 2019 baseline.

For haulage vehicles specifically, TEG’s figures show UK rates falling in January by 18.6 points from the December 2021 seasonal peak, but nonetheless up 18.8 points on January 2021, and the highest January prices since the index was launched three years ago.

Kirsten Tisdale, director of logistics consultants Aricia Limited and fellow of the Chartered Institute of Logistics & Transport (CILT), said the figures demonstrated that: “despite the large seasonal drop in January, price increases have come to stay – the TEG Index is at a completely different starting level to the previous three years.”

Aside from high inflation, Transport Exchange Group CEO Lyall Cresswell identified further issues that could impact supply chain costs this year, as lower-cost European transporters are again restricted from the British market.

“Cabotage rules were changed to ease a shortage of drivers and supply chain disruption, allowing inter-national companies to send lorries with foreign drivers to the UK to make unlimited deliveries in a 14-day period,” he said. “Previously, cabotage rules only allowed international drivers to make two cabotage journeys within seven days of entry into the UK.

“This will again be the case when cabotage rules revert back in May, reducing the number of loads international drivers can carry.

“This will not, of course, help the driver shortage. In addition, cabotage loads are priced lower, so less of them means higher costs all round.”

Returning to the European Road Freight Rate Benchmark, the upwards rate development in Q4 2021 marked the sixth consecutive quarter in which the Benchmark had risen, which was attributed by the IRU to both supply and demand factors.

In terms of supply, the IRU points out that diesel prices, which account for one-third of total operating transport costs, have risen sharply, showing an approximate 25 per cent increase during the year in countries such as France, Germany and Spain. Meanwhile fuel costs were highest in the UK, at €1.75 per litre (£1.46).

Driver employment costs were up due to the widespread shortage, which the IRU said was also ‘most acute’ in the UK, with up to 100,000 vacancies in 2021.

Other nations were also suffering from significant shortages, however: up to 60,000 in both Germany and Poland, and up to 31,000 in France, while Italy and Spain each had 20,000 shortfalls.

Vincent Erard, IRU’s director of corporate services, said “The shortage of drivers is seriously disrupting supply chains in European countries as economies recover and demand for transport services increases.

“IRU continues to monitor, raise awareness and act with key stakeholders to structurally tackle the shortage of drivers. The urgency of the situation is reinforced by the continuous increase in fuel prices throughout 2021, also putting transport operators under great pressure.”

Meanwhile, said IRU, the rapid recoveries of European economies from Covid and manufacturers working to regain capacity resulted in a sharp rise in aggregate European demand. Manufacturing orders in Germany are at record levels, it reported, though in Spain and France, growth in manufacture is being impacted by supply issues.

In the UK, retail sales had “showed solid progress for much of the year and into the peak season”, reaching a level of around 7.2 per cent up on pre-pandemic levels in November. Such factors have helped to push road freight rates up further across the region.

The IRU report also examined cross-channel freight prices. Growth in 2021 was “relatively subdued” for cross-channel traffic from France into the UK, the association said, with a 2.8 per cent year-on-year price increase in the fourth quarter. However, development of rates for the backhaul lane for UK exporters was markedly higher, showing a 12.8 per cent spike in the first quarter of last year then levelling off to a 10.8 per cent fourth-quarter increase compared to the same period in 2020.

The IRU primarily attributed the volatile rate development on cross-channel lanes to Brexit-associated delays and border checks, as well as the UK driver shortage – with traffic at the start of 2021 particularly heavily impacted by post-Brexit rules, and businesses having to contend with additional administrative costs.

Meanwhile, TEG’s Lyall Cresswell warned that import/ export transport and courier costs could rise again in May, when operators of vehicles of between 2.5 and 3.5 tonnes GVW transporting goods bet-ween the UK and Europe will require an operator licence.