The consolidation in the global logistics industry continues to influence the market structure, according to the Unctad Review of Maritime Transport 2008, published recently. Over the past 10 years, as the report points out, there have been major mergers and acquisitions in most industries so much so that even the biggest of the companies cannot be said to be immune to a potential takeover.
This trend also holds good for the logistics industry, where the major service providers have felt it necessary to create more capacity and larger global networks to match the increased cargo volumes and globalised supply chains of their clients.
Another major factor that, according to the Unctad report, has pushed the consolidation of the logistics market is the increasing outsourcing of various transportation, warehousing, logistics and supply chain management activities by global manufacturing companies focused on their core competence.
One area of the logistics industry that has experienced substantial growth in recent years, holding out the promise of even bigger growth, is contract logistics, which presupposes planning, implementation and control of logistics system through a third party under a contract.
Manufacturers and retailers are increasingly outsourcing a variety of value-adding logistics functions, above and beyond warehousing functions. There are many opportunities for logistics companies to extend the range and breadth of the outsourced services they can provide, thus fuelling the growth of the contract logistics market in future.
Alongside this, users of logistics services are also looking for more from their service providers. They realise that logistics costs are likely to increase in coming years due to rising fuel, labour and environment costs. They, therefore, adopt a new approach: collaboration, because it is felt that collaboration involves the cooperation of manufacturers, retailers, their suppliers and logistics service providers — parties that have not always traditionally acted together.
The global contract logistics market has a limited share, about 15.3 per cent, of what is spent overall by manufacturers, retailers and others but the share is growing. The Unctad report estimates that the global contract logistics market grew by 10 per cent in 2006 to reach euro 129 billion and it was driven by an impressive growth in the Asia-Pacific (13.1 per cent) supported by growth in other developing markets such as West Asia and Africa. While the European market posted a below-average growth of 7.2 per cent, North America held up well, about 10.2 per cent.
In 2007, the market size grew to euro 140 billion, posting a growth of just under 10 per cent and the biggest growth, 11 per cent, was in the Asia-Pacific though the figure, according to Transport Intelligence, the UK-based analyst, hides a high level of variance. During the year Europe was helped by double-digit growth in its largest market, the UK.
Growth in Germany and France too was solid and the boom was witnessed in Finland, it being a gateway to Russia. Also, all Central and Eastern European countries grew significantly faster than their western counterparts on the back of growth in foreign investments in manufacturing industries.
The US market was the only one to slow down from the previous year with growth of 7 per cent, down from over 10 per cent in 2006. The drop is attributed to the slump in the construction industry, the credit crunch and the lower retail sales, with sectors related to distribution of imported materials from the Asia-Pacific being particularly affected.
The West Asian market also proved to be buoyant due to the region’s development as a major transportation hub, investment in oil and construction projects and the growth of consumer markets.
Europe, thus, has emerged as the largest market for contract logistics, with a share of 40 per cent, followed by North America, 30 per cent and the Asia-Pacific, 27 per cent. In comparison, the markets of West Asia, South America and Africa are much smaller, each accounting for 1 to 1.5 per cent share.
Interestingly, despite the present global meltdown and the accompanying downturn of the US and Chinese markets, the industry confidence remains high. The forecast is that by 2010, the size of the contract logistics market will rise to more than euro 187 billion, thus posting, on an average, 9.9 per cent growth.
True, the global contract logistics industry was largely immune to economic downturn hurting other transport and logistics sectors in 2007 and, even in the US, where the transport industry is struggling, the growth rate has been satisfactory. However, experts believe that the next few years, despite the projection of good growth, will be challenging.
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