{"id":697,"date":"2020-05-11T15:17:03","date_gmt":"2020-05-11T15:17:03","guid":{"rendered":"https:\/\/blog.uantwerpen.be\/management-information-systems\/?p=697"},"modified":"2020-05-28T19:58:56","modified_gmt":"2020-05-28T19:58:56","slug":"can-road-carriers-increase-their-tariffs-while-recovering-from-the-covid-19-crisis","status":"publish","type":"post","link":"https:\/\/blog.uantwerpen.be\/business-economics\/can-road-carriers-increase-their-tariffs-while-recovering-from-the-covid-19-crisis\/","title":{"rendered":"Can road carriers increase their tariffs?"},"content":{"rendered":"\t\t
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Can road carriers increase their tariffs while recovering from the COVID-19 crisis?<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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In a time when road transport is essential, transport rates have gone down. This means that road carriers are trying to cover their costs by any means. This is not a sustainable reaction. The rates for transport services and an eventual increase of the tariffs is only possible through a group reaction.<\/strong><\/p>

“When I was young, I had a yellow toy-truck. It made me stand out among the 6 year-olds of my building. That was until Santa Clause brought another kid a similar toy-truck, with a remote control\u2026 That was the first practical lesson I\u2019ve got about competition: more-supply, less-visibility.”<\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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A competitive market requires flexibility<\/h2>

Road transport carriers operate in a highly competitive market together with many other (relatively small) players. In Belgium alone, there are more than 9000 road transport companies, more than 80% of them are small and medium size enterprises (SME).<\/strong> These SME\u2019s are usually sub-contractors of the bigger ones.<\/p>

“I ask myself, how flexible is every company\u2019s choice in setting its tariff? Keeping in mind that these choices can always backfire on all…”<\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\"\"\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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Source: Febetra (2020), https:\/\/febetra.be\/infotheek\/cijfers-de-sector\/<\/a><\/p>

The impact of freight exchange platforms is enormous<\/h2>

In the EU, there are over 30 international freight exchange platforms. The services offered by these platforms range from communication channels similar to discussion forums, freight planning, cargo\/truck booking or auctioning, to more advanced services. <\/strong><\/p>

“Hence, this discussion on tariffs is also triggered by the question of why freight exchange platforms allow transport requests to be posted, regardless of their value? I have seen claims that fright rates went very low during the previous weeks.”<\/em><\/p>

To give an example, recently a dispatcher accused a shipper on LinkedIn of offering a relatively low amount of money to have his cargo transported. Fellow dispatchers quickly reacted, saying that this practice is unacceptable and\u00a0suggesting that the freight exchange platforms should ban these types of requests automatically. <\/strong><\/p>

However, h<\/strong>aving the freight exchange platforms setting limits on rates wouldn’t work<\/strong>. Freight exchange platforms are just administrators of a market place and do not intervene in the rate\/tariff setting. It is similar to accusing the organizer of a second-hand market for letting sellers in with overpriced products.\u00a0<\/p>

How can this be corrected?<\/h2>

Low payments for transport can be corrected only by the reaction of the road carriers themselves, as a group<\/strong>. This is easier said than done.\u00a0 Road carriers operate in a very competitive market.<\/p>

“There is a golden rule in the transport market: if you don\u2019t accept a transport order fast, someone else will accept it in the next minute for 0.01 euro less\u201d. <\/em><\/p>

\"\"The road transport segment is the activity with the highest number of players. Due to this highly competitive market, many of these players have reached the situation where they are hardly breaking even.<\/strong> This type of behavior is suicidal and has a long-time effect on fellow road carriers.<\/p>

In theory, operating at a price that does not allow you to cover the costs is not sustainable for any business. Moreover, it creates a wrong premise on the market and it will take time before it’s corrected. Thus, other road transport carriers will be forced to accept alike offers (for low payments) to bridge certain periods. Yet, this bridging will get longer and longer, and it will end only when the market reacts as a group<\/strong>.<\/p>

What can COVID-19 teach us about the group reaction?<\/h2>

The good news is that this group reaction can be given, by each service-segment individually. Taking a look at a survey conducted by two Belgian associations for road transport (Febetra and UPTR), we learn the following: the most affected service segment with a dramatic decrease in activity is the transport of vehicles (-82.30%), followed by exceptional transport (-58.70%), container transport (-37.37%), general cargo and logistics (-31.81%), and temperature controlled transport (-31,14%)[1]<\/a>.<\/strong><\/p>