Already weakened by the fallout from the war in Ukraine, the situation in the road freight transport sector has worsened with the outbreak of a new conflict in the Middle East on February 28.
As a key component of the logistics and supply chain, the transportation sector has been under pressure for several years: between soaring fuel prices and declining business, the sector is facing a real crisis.
The international context
The launch of a joint military operation led by the United States and Israel against Iran is exacerbating an already fragile economic situation in the transportation sector.
In response to the U.S. strikes, Iranian forces have moved to block the Strait of Hormuz, a strategic maritime chokepoint through which approximately 20% of the world’s oil production passes. This major disruption to maritime traffic is causing fossil fuel prices to skyrocket, directly impacting the transportation sector and raising fears of a major economic crisis in the long term. Fatih Birol, Executive Director of the International Energy Agency, told the National Press Club that we are facing a crisis greater than “the two major oil crises combined.” [1]
Since the beginning of the year, the price of a barrel of oil has nearly doubled, surpassing the symbolic threshold of 100 euros. According to the NGO T&E, if prices remain above this level, it could result in an additional cost of 150 million euros per day for European drivers. [2]
Similar to the situation observed in 2022, the rise in oil prices could have a significant impact on the road freight transport sector.
The impact of rising fuel prices on Road Freight Transport
A key component of the country’s logistics and supply chain, road freight transport accounts for nearly 90% of goods traffic in France, while rail transport accounts for more than 8% of this traffic and inland waterway transport accounts for less than 2%. Involving more than 45,000 companies, nearly 85% of which are small and micro-enterprises, the TRM sector employs more than 500,000 people.
The cost of goods sold in the road freight transport sector is broken down into several categories: labor (30%), fuel (25%), overhead costs (15%), vehicle depreciation (15%), maintenance and tires (8%), and tolls and infrastructure usage (7%).[3]
As a result, this sudden increase in diesel prices, which already account for a quarter of the sector’s operating costs, is adding up to 1,000 euros in extra costs per truck. This is a significant expense for an industry that is home to such a large number of small and medium-sized businesses.
The conflict in the Middle East, which is likely to drag on, could have long-term consequences for the health of the global economy.
The case of maritime and air transport
The maritime and air transport sectors are also being affected by these rising prices. The closure of airspace and the disruption of traffic in the Strait of Hormuz are having a particularly significant impact on both sectors.
In addition to driving up fuel prices, the geopolitical situation in the Middle East is also forcing airlines to adjust their flight plans to avoid conflict zones. Already accounting for a quarter of airlines’ operating costs, the more than 100% increase in the price of a ton of jet fuel, which now stands at 1,800 euros[4], is having a significant impact on the sector, forcing it to revise its prices.
Classified as a war zone by the marine insurance market, maritime transport is facing a wave of policy cancellations or significant surcharges on its “war risks” coverage throughout the Persian Gulf.
What you can do to mitigate the impact of the crisis
There are a number of measures and indicators that can be implemented in your company to assess the impact of rising energy prices and mitigate or reduce their effects.
• Maintenance and optimization : By leveraging your telematics data, you can effectively measure your fleet’s fuel consumption and implement the necessary adjustments to reduce it. Regular maintenance of your vehicles will also help you reduce their fuel consumption.
• The fuel surcharge mechanism, introduced in 2006, is a tool available to you that allows you to offset rising fuel costs by passing on a portion of those costs to your customers.
• Route optimization : By using artificial intelligence and route optimization tools to streamline the routes taken by your truck fleets, you can reduce their fuel consumption.
• Hedging, as practiced in the aviation industry, is another way to protect yourself. By securing fuel supplies when prices are low, you limit your exposure to market fluctuations.
In conclusion :
As a strategic sector for the economy as a whole, the road freight transport industry faces numerous challenges that undermine the position of small and medium-sized enterprises (SMEs) and mid-sized companies in the sector. Affected by the rapid rise in diesel prices, these companies must rise to the challenge of keeping their businesses afloat.
A veritable economic time bomb, the worsening of an already tense situation in the transportation sector could disrupt the country’s entire logistics and supply chain.
This crisis presents both a challenge and an opportunity to reinvent ourselves. At NG, we offer solutions tailored to your business needs. With expertise across a wide range of industries, including the road freight transport sector, NG is ready to answer your questions and provide guidance on your operations.