Today the transport sector is not immune to the inflationary trend that is hitting the world economy, especially since it combines a certain number of factors making the bill difficult to swallow for shippers and consequently for the end-consumers.

Is such impact inevitable? Are alternatives possible in the short term in order to preserve the competitiveness of manufacturers?

Before discussing possible solutions, it is important to fully understand the origins of this price hike.

Tensions in the transport market in Europe

Tensions have appeared over the last two years on the road freight market in Europe, mainly due to the lack of availability on the transport offer and galloping inflation of operating costs. These tensions have undermined the already fragile financial health of transport companies and have amplified the disruptions in industrial supply chains, impacted by the various global shortages of certain components or raw materials.

The 2 years under Covid have effectively stretched the cash flow of transport companies operating with very low margins. Even if certain countries have set up compensatory measures or offered guaranteed loans, the time has come for reckoning: the losses accumulated during this period must be compensated in one way or another and the loans taken out must be reimbursed otherwise defaulting. According to the Banque de France, the bankruptcies of transport companies would have increased by 48% in 2022 underlining such financial challenge.

Fuel, the main cost component for road transport, experienced inflation of 40 to 60% in 2022. Unfortunately, skyrocketing fuel prices have not been compensated at its fair level in the invoicing of services to most shippers. Indeed, if this item represented 25 to 33% of the cost structure of a transport operation depending on the type of service and the distances travelled, the weight of fuel has now fallen between 30 and 45% depending on the fluctuation of course. Formulas for adjusting transport tariffs based on fuel rates and included in certain transport contracts do not take into account this structural change in the weight of this cost item. They therefore offer partial compensation for this increase, often in the vicinity of 25 to 30% for long-distance road transport, whereas it would now be necessary to consider a weight greater than 40%. Some governments have fully understood the economic and social impact of this sector going bust and have not hesitated to legislate. Thus, Spain has imposed a minimum weight for fuel of 40% in formulas for adjusting transport tariffs, but is such regulation taken into account by the purchasing departments of the shippers? The Moroccan government is considering an identical measure for international transport between the Cherifian Kingdom and Europe, a sector supporting a large part of the country's economy. The shortage of drivers in Europe has also drove tensions in this sector. In 2023 around 540,000 jobs could not be filled on the continent, a structural matter exacerbated by the war in Ukraine. The sector no longer attracts! This is why this shortage has a direct impact on the availability of transport offer for shippers and generates additional inflationary effect, on the one hand, due to the principle of supply and demand and, on the other hand, through the increase in driver salaries in order to retain or attract the right skills.

Equipment is also rare and expensive. In the same way as for individual vehicles, the production of road trucks has been impacted by the Covid crisis, the shortage of semiconductors and the increase in the cost of raw materials. We can also consider that the manufacturers also took advantage of a windfall effect after the crisis in order to restore their margins. Spare parts, tires and maintenance also followed the same movement with an estimated increase of around 15%.

The fuel subsidies put in place by the various governments in Europe and in the Maghreb, combined with contractual price adjustment clauses, have effectively had a moderating effect on operating costs, but without necessarily fully offsetting the true additional fuel cost incurred by carriers. If in general, these measures have made it possible to moderate the dissatisfaction of the sector, their imminent abolition creates a structural problem of stability and will generate an additional inflationary effect. Indeed, Spain will gradually eliminate subsidies of €0.20 per litre of diesel for transport professionals until June 2023. France will end its flat-rate aid in March 2023

What is the outlook for transport prices?

Fuel prices will remain high at current levels in 2023 due to international tensions and the windfall effect for producing countries. The abolition of rebates at the pump will generate an additional burden on carriers which they will have to pass on in their rates.

The other inflationary factors will persist: shortage of drivers (even if some governments open the doors to immigration sparingly for a marginal effect), increase in wages due to general inflation, ever more expensive equipment and spare parts, etc. Similarly, given the losses accumulated over the Covid period and the loans to be repaid, the transport sector will have to restore its margins in order to sustain its services and ensure a minimum return on capital.

As mentioned previously, fuel subsidies will gradually end in most countries and carriers will automatically have to pass on the increase in their costs tariffs unless being unable to maintain their service. As such, while the market had become accustomed to stagflation and constant pressure from buyers on transport prices, the balance of power was not reversed but radically transformed. In fact, faced with a supply/demand imbalance, carriers had to arbitrate in favour of the most profitable activities offering medium-term perspectives as well as in favour of shippers offering fair price adjustment mechanisms. In the absence of an agreement, some carriers even preferred to let the vehicles standstill rather than increasing their losses .

Transport prices will therefore continue to face significant inflation, particularly on trade routes where volumes remain strong, such as on the Morocco-Europe route, but will stabilize on the intra-European route due to the contraction in the continental economy.

Better shipper-carrier collaboration can mitigate these inflationary effects

This very tense and unique situation creates the opportunity for all parties to review their collaboration model, or rather to move from a pure subcontracting model to a more balanced relationship where common interests can perhaps converge.

Before looking for productivity gains as a result of a better ​​collaboration, the priority for shippers must above all be to secure the transport capacity made available to them. The consequences of a disruption in the supply chain are far much greater than the few percentages gained in procurement. Contractual commitments and other binding penalties for carriers are no longer sufficient to guarantee the resources made available. It is certainly necessary to set up volume commitment offering some perspectives for the transport company and enabling the allocation of a dedicated fleet with a fluctuation ratio to be agreed, the offer no longer being flexible as desired. The transport market has evolved, even if a lot remains to be done in terms of the maturity of all players. But trustful transport companies can no longer afford to assume on their margins, already low and undermined in recent years, industrial risks or those related to the goods value. Shippers certainly have more to gain from negotiating capacity commitments in order to secure their supply and distribution chain against more reasonable contractual clauses, especially since transport companies, faced high demand and will have to carry out arbitration to the detriment of shippers with the most restrictive and least profitable conditions.

Once the transport capacity has been secured, it is important to identify actions to improve the fleet productivity in close collaboration between transporters and shippers to generate gains which can then be shared and will mitigate the inflationary effects previously mentioned. One of the major points of increased costs is the immobilization of vehicles due to process issues encountered during loading operations or at destination. These additional costs with no added value are not always well identified or are sometimes considered as normal. Carriers, due to an unfavourable commercial relationship, sometimes have to absorb them or end up integrating them into their tariff, ultimately impacting shippers' transport budget. When these extra charges are billed to shippers, they are sometimes incorporated into production costs at the risk of no longer being identified as a source of underperformance. In this context, if no improvement action is possible at origin plant or at destination, 'drop & swap' solution can make it possible to optimize the operating time of the trucks. Technology can also be a source of improvement especially in relation to route planning .

Other productivity gains can be generated through a reduction or rather a better efficiency of administrative tasks. It should be noted that structural & administrative charges represent 10 to 15% of transport costs, therefore a significant opportunity for optimization and for mitigating inflationary factors. In this context, the use of digital tools can be a stimulating performance accelerator. Nowadays, it is absurd to see that shippers as well as carriers still maintain outdated processes, without added value, labour-consuming and CO2 generators. Which tasks can therefore be improved?

-          A transport order is still too often initiated manually via email or through Excel files, which requires multiple entries with a risk of error. The implementation of EDI on standardized platforms or even simple web access offered by the carrier to its customers can simplify this process;

-          Regarding the tracking of transport orders, how many shippers use electronic tracking either via web access or via EDIed status updates? In many cases, the carrier is asked to carry out tedious manual monitoring in Excel files and feedback by email multiple times a day information which is often only used by exception;

-          Performance reports and other manual statistics require an administrative burden with no real added value and could be automated based on what the carrier's TMS can produce, generally covering 99% of shippers' needs;

-          As for the invoicing process, it sometimes remained blocked in the 20^th century and some shippers still require the production of CMR or original delivery documents attached to invoice hardcopies in order to be able to record them, a tedious process with no real added value but which allows some shippers to extend their payment terms

It is obvious that financial gains can be generated by a joint reassessment of all of these administrative tasks and thus mitigate the inevitable price increases to come. The carbon impact of these tasks must also be considered at a time when international road transport solutions with lower emissions are not yet economically attractive or technically ready (hydrogen, electric, rail-road, etc.).

Another avenue to explore is about the consequences of the lack of drivers in Europe and its induced inflationary effects (increase in wages, mileage or retention bonuses, etc.). For international flows with Morocco, a major economic partner of the EU, particularly in the automotive, textile and agriculture sectors, shippers can favour carriers with a large Moroccan fleet, such as SJL, and able to operate in Europe. Indeed, Morocco has a large workforce with skillsets that meet European standards. But let’s be careful, this strategy must be carried out with parsimony and professionalism. Indeed, the level of qualifications, compliance with safety standards and regulations can be very disparate. In addition, the risks associated with illegal immigration and various illicit trafficking are real and must be addressed with the utmost seriousness. Shippers, in their assessment process, must ensure that the selected carriers have implemented very strict procedures for the selection of drivers with a continuous training program. For example, in the SJL Group, drivers can only be assigned to the international freight activity from 2 years of seniority to ensure their reliability and performance to the expected standards.

Soaring transport prices are therefore an inevitable and structural trend, but through better cooperation between shippers and carriers, the implementation of good practices will make it possible to mitigate its economic impacts and thus build a sustainable future.