Tariffs September-December 2020
An optimistic beginning of 2020.
The current year we started predicting market conditions for the next twelve months, as it was important to understand the trend line for the cost of delivery of goods in import traffic from the main trade regions. We do it for our clients, who can implement budgeting for next year based on this data. Also, it is necessary to take part in tenders of international companies, active and potential clients. As they, normally hold a tender at the end or beginning of the calendar year..
We entered the new 2020 season quite confidently, being aware of what to expect, because for more than one or two years we have been facing with factors influencing the first cost of cargo transportation: “number of Polish permits” and “specific seasonality of the Ukrainian economy (import/export balance)”. We have become accustomed to the fact that we will have to deal with such factors both now and from year to year in future. Therefore, based on the results of 2018 and 2019, we understood how these factors affect pricing throughout the year, and we developed a mathematical model to predict rates for the year ahead.
In 2020, together with our customers, we faced a new factor that influenced the cost of cargo transportation with renewed vigor – quarantine. For participants in the transportation market, it manifested itself in the form of a ban on drivers entering the territory of European countries, the requirements of a fourteen-day period of self-isolation, factories in Italy and partly throughout Europe stopped, the volume of imports and exports dropped significantly. Quarantine in March-April 2020 created enormous difficulties for the movement of transport across Europe with a consistently high demand for cargo delivery – this led to an abnormal increase in rates for this period, and in May-June, quarantine led to a sharp drop in demand/import volumes – to 50 %, which dramatically reduced the average level of rates in the market.
In late June and early July, the market situation began to stabilize, and the market began to revive. The volume of imports, however, began to grow at a faster pace in comparison with exports from Ukraine. In July, rates reached the level that we predicted at the beginning of the year.
Forecast until the end of 2020.
Based on the results of work in July-August, we see three scenarios for the development of the economic situation in the country and, accordingly, the level of prices in our market until the end of the year.
1. The first is optimistic.
“Import/export volume will rise and we will be on track of 2019”.
Now the market is stabilizing, it will enter the track of 2019, while companies are actively starting to work due to downtime in the previous months. The effect of deferred demand is manifested. Everything is going predictably, i.e. as the market behaved in the second half of last year. With the same permit congestion and the same import / export imbalance by the end of the year. We remember that for 2020 Poland reduced the number of transit and universal permits for our carriers by 20%, which at the end of the year could lead to more turbulence in the market than at the end of 2019. But no, the market behavior will not differ significantly from last year, because a decline in the number of imports by at least 20% due to downtime during quarantine will level the difference in the number of permits. The situation with the availability of permits at the end of the year will not be worse than last year, but not significantly better as well. To predict rates by the end of the year, it is enough to look at rates in September-December 2019.
2. The second is pessimistic with falling rates.
“A new economic crisis, similar to 2008, will manifest itself, which will affect the economy, the value of the currency, the already small volumes of imports and exports will go down”.
In July, the US reported a 35% decline in GDP for the second quarter, the worst since the 47th year of the last century. Many other countries also reported declining GDP. The 2008 crisis began with the United States with a drop in GDP. Although, then the GDP indicator was not so low. In the summer of 2008, the crisis began in the United States and in the fall it manifested itself in Europe. We felt a spike in the exchange rate, the economy came to a standstill, and cargo transportation almost stopped temporarily. A similar thing can happen in 2020. If so, the volume of import and export will drop to the minimum and rates will fall by 1.5-2 times.
3. The third is pessimistic with the growth of rates.
“There will be a second wave of tough international quarantine restrictions”.
In addition to the critical economic influence of the United States, a new wave of quarantine may appear this fall. It is possible that quarantine will not have such a strict regime within countries, but there will be restrictions for drivers when crossing borders, requirements for self-isolation, and the presence of PCR tests passed again. Such a scenario may partially repeat the conjuncture of April 2020 and stretch for a couple of months. Moreover, if the second and third scenarios happen simultaneously, then we will see a completely new round of the crisis with incomprehensible performance.
What do we offer?
Forecasting economic macroeconomic indicators is not the domain of logisticians. For sure, many forwarding agents and carriers can make their predictions through their own special “prism of views and opinions”, but we have not heard about specific forecasts and specific calculations. Therefore, it is important for customers to be attentive, especially when today they receive promises about fixing tariffs already for 2021.
Our task is to be based on facts, while having a forecast and watching closely. And we have to watch as closely, as the market requires.
We recommend our clients to focus on the first scenario. The transport logistics budget for imports and exports by the end of the year will be similar to the second half of 2019. For those clients who have started (or are planning to start) working with us this year, we are ready to provide statistics of last year’s rates on similar routes, which will allow us to predict prices by the end of the year.
If the market deviates from the first scenario, we will immediately react. Firstly, our clients will receive a newsletter “on the state of affairs in the international cargo transportation market” with a description of the facts and an updated forecast, and, secondly, we will update rates to the market level.
Chief Development Officer