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TMM 33: Capacity and price indices remain at extreme levels

23 Nov 2017

The 33rd edition of the Transport Market Monitor has been published. The TMM is a quarterly publication by Capgemini Consulting in collaboration with TRANSPOREON, a logistics platform that connects shippers from industry and trading companies with carriers, drivers and consignees. This edition shows an unusual index development, as the transport price index and the capacity index increased from Q2 to Q3. Taking into account the developments in September, it will be interesting to see whether the tendency of a strong decrease of the capacity index and increase of the price index will continue throughout Q4.

The Transport Price Index increased in Q3 2017 by 0.6% compared to the first quarter of 2017. From last year (Q2 2016) the price index increased by 7.0%. For September 2017, we have seen the highest price index on a monthly basis since the start of the TMM. Furthermore, the Capacity Index in Q3 2017 displayed an increase of 2.6%. Compared to the previous year, however, it still shows a tremendous decrease of 20.5%. If we look at both indices we see an unusual development: it is the first time in five years that an increasing price index and an increasing capacity index are observed simultaneously in a third quarter. Normally, we would assume that an increasing capacity index would lead to decreasing prices. The current capacity index is, despite the increase, still at a very low level meaning that the capacities on the market are very scarce and expected to decrease even further towards the end of year. One reason underlying the decreasing capacity index is the limited availability of labor (truck drivers). Although logistic companies would have sufficient trucks available, the truck driver scarcity does not allow them to actually offer it to the market.

The increasing price index could be caused by a perspective price adjustment of the capacity offer. With the expectation of declining capacities and the upcoming end-of-year business, an increase in demand is expected, while the capacities tend to further decrease. The upcoming shortage can cause the mentioned perspective price adjustment, so that prices are increased today with the knowledge that future prices will increase even further. Another reason for the price index increase can be a shift of contract shares. While capacities at the spot market tend to be traded at a lower price, the expectation of a capacity shortage can lead to an increase of contracting with fixed prices to ensure future capacity availability, but paid with higher costs.

Additionally, this quarter the Diesel Index decreased by 3.0%. Similar to the comparison of the transport price index and capacity index, it is rather unusual that, even though the diesel index decreases, we observe an increasing price index.

The European Trade Flow Index (ETFI), which shows the trade volumes in Europe, is expected to decrease by 5.7% to €2.038 bln. This could be the third quarter in a row with declining growth, as well as the largest decrease since the start of the ETFI in Q4 2011. Taking the development of the transport price and capacity index into consideration, the decreasing ETFI could relate to a lower demand for transport capacities. Based on the ETFI expectation, companies could react by reducing their supplied market capacities to avoid overcapacities in future. The expectation of the decreasing ETFI and future decrease of capacity can lead to the explained possibility of perspective price increases.

The coming Transport Market Monitor, with figures regarding Q4 2017, will show us whether the stated hypotheses are correct and whether the year-end business will have its effect on the demand and supply side, potentially leading to a return of the usual index relations of increasing price for decreasing capacities.


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