DURING the recent years of record growth in the transportation market, many carriers invested in expanding their vehicle fleet in order to satisfy the customers’ demands. However, although the transportation market did grow over the last two years, it was not enough to make the new vehicles profitable to their owners. Moreover, the market has also been affected by rising fuel prices, an increasing cost of labour and cheaper competition from abroad.
As a result, carriers expect a drop in the number of firms providing transportation services. They say that only those who will be able to cover the increasing costs and at the same time offer competitive prices will survive. However, with a similar trend being seen in all Visegrad Four (V4) countries – which include Slovakia, the Czech Republic, Poland and Hungary – Slovakia is not alone in having to face tough competition on the transportation market.
“Firms that offer transportation for dumping prices will hardly be able to stay on the market, because sooner or later the insolvency will affect them,” said Mária Džundová, country sales and marketing manager of TNT Express.
Only a carrier whose sales will be able to cover its costs and at the same time be able to make the profit needed for further development, new technologies, and providing services with a higher added value will be able to stand up to this competition, said Džundová.
Veronika Podstrelencová, production manager at DHL Freight Slovakia, said that the competition is affecting mainly smaller carriers with 10 or fewer vehicles.
“They are being forced to cut back on their vehicle fleet or even close the firm down,” Podstrelencová said. “Even middle-sized companies have had to cut back on purchasing new transport capacity. Firms that lease a major part of their vehicle fleet are also being threatened because they are not able to cover the costs of renting the trucks.”
Only a small number of transportation companies were established this year and there has been a minimum amount of growth in the size of vehicle fleets, she said. Podstrelencová added that a decreasing trend in the sale of new trucks weighing over six tonnes has been seen since May this year. It is expected that the sale of vehicles will drop by 10 percent compared to 2007.
Some smaller carriers have already closed down business, although the number is still not that high, Podstrelencová said. DHL Freight expects that the main wave of failing transportation businesses and fleet cuts is still yet to come.
Pavol Reich, general secretary of the Česmad association of carriers, also expects Slovak firms’ transportation capacities to decrease.
According to Reich, small carriers that have to look for contracts week-by-week, because they have not been able to establish themselves as suppliers of large transportation firms, will be the ones who will feel the brunt of the blow.
“Only carriers that will be able to increase prices and also cover all their costs in the price will keep their place in the transportation market,” he said, adding, however, that raising prices in the face of the market’s current harsh conditions is extremely difficult.
The Slovak transportation market currently has an abundance of transportation capacity, according to DHL Freight. Despite several large mergers, the transportation market is still not consolidated and still contains a large number of scattered smaller and mid-sized carriers.
“Last year’s boom of transportation capacity, which was caused by a significant demand at the end of 2006 and a consequently fast increase in price for transportation last year, has now ended,” said Rastislav Brenčič, director of DHL Freight.
A slower increase in demand for transportation services in relation to the jumped-up supply caused an abundance of supply over demand on the transportation market, said Brenčič. The market responded by a decrease in price, or stagnation, despite the strengthening Slovak crown and the continuing increase in the price of diesel.
“If the carriers wanted to stay competitive in such a situation they had to allow a decrease in their profits,” said Brenčič.
As a result of the competition, customers have started focussing much more on the quality of transportation capacity and equipment, the environment, and safety. Engines that meet the newest EU norms, GPS systems, and the 24-hour monitoring of vehicles are becoming common, he added.
However, Džundová from TNT thinks that the situation has not been caused by an abundance of supply in transportation capacity and supply exceeding demand, but rather by harsh competition and customers who are pushing carriers to lower their prices.
“However, a decrease in capacity due to weaker companies going bankrupt can happen,” she added.
Džundová explained that although the transportation market is currently still growing in Slovakia along with the rest of the economy, the pace of growth is slower. Three to four years ago the transportation market was growing by up to 40 to 50 percent, but now it is significantly lower, she said.
The whole transportation industry responded to the record market growths by purchasing vehicles and other transportation facilities, effectively increasing supply beyond demand. The situation was also affected by foreign carriers, mainly from Poland, entering the market, she added.
“The consequence is clear – higher competition,” said Džundová. “The competition brought decreasing prices for transportation, despite the fact that salaries and fuel costs are growing dynamically.”
The carriers added that this harsh competition is being seen not only on the Slovak market. Slovakia is only following what has been happening in the other V4 countries and all over Europe. Companies across the whole region can expect mergers and consolidations.
“Large companies will become larger and smaller ones will only be able to survive if they focus on markets with special needs and transportation requirements,” said Džundová.