Commercial Road Transport: Current State and Economic Outlook

Commercial road transport has been hard hit due to traffic restrictions and the economic downturn. The global economy fell into recession last year and is not expected to recover to pre-pandemic levels in 2021. Social and economic recovery from the global crisis depends on road transport which accounts for more than 80 percent of the logistics and transport services.

At the same time, logistics operators are facing default and insolvency risk and few have benefited from cash grants and other types of financial incentives.

  

Default Risk

Freight forwarders throughout Europe and globally are facing very high or high risk of default which can affect their credit rating and increase the cost of borrowing. Risk is particularly high in Europe because of repeated supply chain disruptions. Globally, countries facing a very high risk include the USA, Saudi Arabia, Russia, Turkey, and Argentina.

Insolvency

Companies that cannot cover their operational expenses or pay off their loans become insolvent. The main indicators of insolvency risk are real revenue growth, free cash flow, and fixed asset turnover. Operators that face decline in income are unable to pay ongoing charges and invoices. A further problem is the fact that some clients do not make timely invoice payments while suppliers demand cash on delivery.

Government Financial Assistance

Measures targeting small and medium sized enterprises (SMEs) are mainly focused on easing loan repayments, facilitating access to capital, and reducing charges and taxes. The majority of freight forwarders are SMEs but only a few countries have implemented specific support measures such as flexible vehicle leasing.

Additionally, just 18 percent of international freight forwarding businesses have received financial support in the form of grants. About 20 percent of operators report lower vehicle insurance premiums. In about half of the countries globally governments have temporarily reduced charges and taxes.

Economic Forecasts

Experts expect a rebound in transportation demand due to partial economic recovery in mid-2021, resulting in increased trade and freight volumes. At the same time, analysts warn that freight rates will increase with economic recovery due to shortage of drivers and rising fuel prices. The year-on-year increase is in the range of 2.5 – 9 percent, with rates per kilometer from €1.6 to €1.7. In 2020, the drop in average rates was in part due to lower demand caused by the global depression. Lower levels of consumption and the travel and traffic restrictions imposed by many countries also contributed to lower average rates.

One factor that is expected to put pressure on prices is the shortage of drivers in Europe. Lower demand for road freight transport resulted in lower demand for truck drivers. Increased demand and pressure on wages are likely to result in freight rate increases. Finally, fuel prices plummeted in 2020 and remained at very low levels but are expected to increase in 2021 as a result of the upward trend in oil prices.  Prices per barrel increased by 16 percent from 1 January to 4 February alone.