Supply Chain Transformation Blog

Supply Chain Transformation Blog

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Unusual High Capacity is Accompanied by Seasonally Low Prices

Category : Supply Chain

Over the course of the past few months we have observed the European transport market and its seasonal character throughout the year. Again the results of the analysis can be found in the latest issue of the Transport Market Monitor (Link: www.transportmarketmonitor.com). In the summer time, capacity is low and prices are usually higher compared to the winter time. While the twenty-eighth edition of the Transport Market Monitor still indicated this seasonality, Q2 2016 saw the highest available capacity for a second quarter since the start of the TMM. The expected price increase for Q2 was therefore unsurprisingly low, compared to previous years. Considering the slight recovery of fuel prices (+ 15.8%), one could argue that Q2 was surprisingly tough for transport companies.

Throughout the last two entries of the blog, I argued that the cost benefits of the current diesel prices are not equally shared between forwarders and consignees.  While Q2 2016 saw an increase in prices by 5.3%, driven by a 20% drop in available capacity, the diesel index recovered and increased by 15.8%. You can draw two conclusions from these facts. First, as freight companies are able to compensate the 15.8% increase in diesel cost without a significant price adjustment, one could conclude that my argument about lacking benefit sharing was right. If benefits would have been shared, we would have seen corresponding cost sharing in Q2. Secondly, the highest available capacity ever in Q2 indicates a rather worrying outlook for the freight industry.

In addition, these facts have been accompanied by a further downturn in trade volumes. A crucial drop (-4.4 % for Q2 2016) is expected within the European Trade Flow Index (ETFI), which is derived from Capgemini Consulting’s Global Trade Flow Index that tracks the trade of goods and services. The expected volume for Q2 2016 would be the lowest volume since Q4 2011, when the trade volume was
€ 1942 billion. Since the volume of trade is a strong driver for transport demand and corresponding prices, both the relatively high capacity that was measured in Q2 2016 and the low price index seem to be further influenced by this development. As indicated in the last edition of TMM (May 2016) this situation will force companies within the logistics industry to further fight for market shares and increase their competitive advantages (e.g., by applying new digital services). However, we expect this to be challenging, especially given current developments within Europe (e.g., political unrest in Turkey, the Brexit). Even though the consequences of such developments are not entirely predictable, they could be immense and therefore all players are urged to act proactively by questioning their current business models.

Once again the outlook for the logistic industry remains rather unpredictable and personally I am curious to further monitor developments within the European transport market. I am looking forward to hear your opinion regarding these interesting topics. Feel free to contact me!

About the author

Ralph Schneider-Maul
Ralph Schneider-Maul
Ralph Schneider-Maul leads Capgemini Consulting's Supply Chain practice in DACH (Germany, Austria, and Switzerland) and has experience across several industry sectors including industrials, automotive, aviation, and manufacturing.

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