By Olga Rissin | Product Manager, Chainalytics |
This blog is part one of a two-part series on the anatomy of a local capacity crunch. Today, we’ll explore the effects of the Calais immigrant crisis, regulatory changes and the British trade imbalance on transportation rates out of Poland, presenting hypotheses and our analysis of this local capacity crunch. In part two, we’ll address how shippers can best navigate similar market situations.
What happens when carriers increase their rates on certain lanes, citing reasons from regulatory changes to political events? How do you know what’s really behind the increase?
In the latest European Freight Market Intelligence Consortium (FMIC) market model we noticed that many shippers saw dramatic rate increases on from Poland to Great Britain during Q3-Q4 2015. Analyzing 2.7 million shipper transactions in Europe for 2015, we could see that the rate increase from Poland to Great Britain began in summer 2015 and peaked by the end of Q3:
Our interviews with shippers identified potential factors brought up by carriers to explain the change in rates:
- Many carriers cited risks, like crossing Great Britain’s border and the Calais immigrant crisis, which to them presented a risk due to the increased number of incidents with immigrants stowing away trucks and potentially causing detention or arrests in Great Britain
- Poland’s regulatory changes affecting drivers’ hours of service
- A change in the GBP position that caused a trade imbalance with an increase in volume to Great Britain
We decided to look more closely at these arguments and find out what stood behind the increase: Was it specific to certain corridors—such as Poland to Great Britain–or a broader issue?
In addition we decided to analyze the change in the number of loads on these lanes, as we know that rates usually correlate strongly with capacity.
The chart below shows the change in the number of loads on lanes from Poland to Great Britain throughout 2015. We can clearly see a sharp increase in number of loads moving on these lanes starting in May 2015.
If rates and volumes from Poland to Great Britain went up, this increase could be related to the change in Great Britain, as many carriers’ reasoning implied, or to the hours-of-service changes in Poland.
To isolate the issue, we needed to see whether other origins in continental Europe shipping to Great Britain had experienced a similar increase in rates and number of loads.
The charts below show in blue the volume on lanes to Great Britain and in green-red the change in rates.
The data clearly shows the volume and the rates anomaly was specific only to the Polish origins shipping to Great Britain; on other lanes the volumes and rates either remained relatively the same or decreased relative to the beginning of 2015. Therefore, the hypotheses involving the British trade imbalance or the Calais immigrant crisis appear to be purely anecdotal.
However, the change in the number of loads on those lanes is correlated with the rate dynamics. Possibly the rates increased on moves out of Poland to Great Britain because of a shortage of truck capacity in Poland due to a significant increase in volume over a short period of time.
If it were a Polish capacity problem, the increase in rates and loads would be true on other lanes out of Poland. Below you can see volumes and rates from Poland to other destinations in Europe (excl. Great Britain creased in Q3-Q4 2015).
If capacity out of Poland were in short supply, we would also expect to see a decrease in rates for lanes going to Poland, since carriers could easily find backhaul freight from Poland. And indeed, if we look at all lanes going to Poland, the data shows a 9 percent decrease in rates relative to the beginning of the year with the most dramatic dip starting in August 2015.
In addition to these findings, Chainalytics analyzed the change in carrier portfolios for shippers with multiple, heavy-volume lanes originating in Poland to see how carriers raised rates over the year and how their carrier portfolios changed. Our analysis showed that most of the contracted carriers started increasing their rates in the summer, while many new carriers were introduced in Q3 and charged even higher premiums.
This behavior is typical of carriers during a “capacity crunch,” where the demand for trucks increases over a short period of time, but the supply doesn’t change as quickly. Many contracted carriers reject loads unless they can increase their rate. Shippers must then find backup capacity and may pay even higher rates with new carriers due to low capacity in the contract market.
To summarize: Our team confirmed an increase in rates from Poland over the course of 2015. It appears Poland entered a capacity crunch that started in June and peaked in September 2015, causing rates to increase starting in July on all cross-border lanes originating in Poland. Freight going to Poland also showed a decrease in rates starting from July, which is typical for those destinations where carriers can easily fill backhauls.
The volumes out of Poland dropped in Q4, which would imply that in 2016, rates should return to previous Q3-2015 levels in the current on-going bid cycle for many shippers. We will continue to monitor the activity on these busy lanes and measure the change in the next cycle of the Freight Market Intelligence Consortium data analysis in a few months. Stay tuned.