Industry index reveals 2022 began with higher road freight prices than the previous three Januarys. As rising interest rates and inflation bite, logistics industry experts uncover what else is set to impact the supply chain in 2022.
The average price-per-mile for haulage and courier vehicles increased from 101.5 points to 116.8 points between January 2021 and January 2022, according to the TEG Road Transport Price Index – a 15% year-on-year increase.
As in previous years, the price-per-mile dropped following the traditional surge for Christmas, having decreased by 13.5 points from December to January. But 2022 still kicked off with the highest January prices for haulage and courier vehicles since the TEG index began in 2019.
This comes as prices soar across the economy, with interest rates increasing for the second time in three months and widespread worry about the continually rising cost of living.
Surging inflation – which saw a 30-year high in December – is closely linked to supply chain bottlenecks and rocketing energy costs. The more it costs to manufacture and transport goods, the higher their price tag will inevitably be.
A further consideration is that the Covid-19 pandemic – and associated lockdowns – resulted in extremely low levels of economic activity, setting a low base rate which inflation is now being measured against.
Kirsten Tisdale, director of logistics consultants Aricia Limited and Fellow of the Chartered Institute of Logistics & Transport, says: “The TEG Index is telling us two stories about road transport as we enter 2022. First, 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.
Second, the haulage and courier elements have re-converged, at least for now, suggesting that there was an element of (understandable!) panic about HGV drivers going into the peak demand period.”
What other factors will impact supply chain costs in 2022?
With inflation foremost in the minds of both logistics professionals and businesses alike, Lyall Cresswell, CEO of Transport Exchange Group notes other trends set to impact road freight prices this year.
EU rule changes
Lyall Cresswell highlights the role that outgoing cabotage rules and other, new rules will play.
“Cabotage rules were changed to ease a shortage of drivers and supply chain disruption, allowing international companies to send lorries with foreign drivers to the UK to make unlimited deliveries in a 14-day period.
“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.
“Significantly, new regulations in May will mean smaller vehicles (between 2.5t and 3.5t) will require an operators’ licence. This requirement for international goods vehicle operator licences for carriage of goods previously only applied to larger vehicles, therefore this rule extension is another big industry change that we’ll soon see reflected in the TEG Road Transport Price Index. Businesses transporting goods between the UK and the European Economic Area will need a licence from May, adding to costs for a great many firms.”
Lyall Cresswell cites the growth of the on-demand economy as another driver of supply chain costs.
“Platforms like Uber started the real upscaling of the on-demand economy, but now we’re seeing the rise of ultra-fast, hyper-local grocery delivery. There is fierce competition in this space, particularly since lockdowns made us dependent upon these services.
“This growth has put immense pressure on the transport and logistics sector to meet demand, recruit quickly and adapt to new technological requirements. Needless to say, this has contributed to rising costs in the sector for some time now.
“However, the appetite for so many on-demand services could prove fickle, particularly when the pandemic winds down, and companies may find commercial sustainability elusive. As with so much else in the transport industry, much depends upon the course of the pandemic in the next few months and how consumers respond to changing circumstances.”