Resilient market development despite growing challenges

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Commentary on the current situation in the European logistics industry and the load factor during the second quarter 2018 from Martin Veen, Head of M&A and strategic projects, DHL Freight. The economic momentum persisted during the second quarter 2018, even against the background of a slight downward correction by 0.2 percent of the growth forecast for the European economic area, now at 2.2. percent. This is primarily caused by one-off effects in the first quarter 2018 and persisting political insecurities such as, for instance, the protectionist tendencies of the United States, the impact of Donald Trump revoking the Iran Nuclear Deal and the temporarily sketchy political situation in Italy. Still, the Eastern European economies are posting strong growth figures beyond three percent, whereas the general growth prospects in the rest of Europe are expected to be around two percent per annum. During the course of the second quarter 2018 the key indices stabilized on a comparatively high level after a slight decline during the first three months of the year. Thus, the Economic Sentiment Indicator came in at 112.2 points in June, ten points above the long term prognosis. The German Ifo business climate index changed it’s methodology in April and from now on also factors in the services sector. The index stabilized just a tad above 100, standing at 101.8 points in June. Likewise, the European Purchasing Managers Index (PMI) by IHS Markit continued its minimal downward trend due to slowing growth numbers, but remained at a comparatively high level with a June reading of 54.9 points.

Industry specific factors

The capacity shortage in the European road freight market has gained further momentum. This is increasingly reflected in the freight rates. For instance, the index of the Transporeon Transport Market Radar rose to 112.4 points in June 2018, compared to 107.9 at the same point in time in 2017. The increase is even more pronounced in comparison to the first quarter 2018, with a 15.3 point differential. Along these lines the available transport capacities underwent a significant drop-down caused by seasonal effects, losing 32.2 points in Q2 to a value of 73.7, as per Transporeon. This is roughly correlating with the previous year's levels. Likewise the TimoCom European Transport Barometer stated a demand-supply-ratio of 79:21 in May, which marks an unprecedented record. The respective values in June were 75:25, which represents the highest level since 2011. Summarized, these trends clearly indicate a continuously aggravating systemic shortage of transport capacities on the market.

Outlook

Even accounting for the seasonal drop at the beginning of the year freight volumes are significantly up in the second quarter in comparison with the first three months. This applies to Terminal Based Operations (TBO) as well as to Non Terminal Based Operations (NTBO). A slowdown of demand during the remainder of the year is not to be expected. Underpinning this, the European Road freight Forwarding Index of Danske Bank predicts another increase of demand within the next two months. Meanwhile, discordance on the EU-Level concerning a unitary legislation of European Road Transport still persists. In early July, the European Parliament rejected the so-called European Mobility Package, which included important topics like the posting of workers directive, cabotage rights and drivers' working hours. The bill was remitted to the committee stage. This brings national regulations back into focus, and consistent rules and regulations for all market participants are currently out of sight. In combination with continuously rising diesel prices and additional road tariffs such as the more or less agreed significant increase in Germany, a further price inflation on the market is to be expected.