Global Contract Logistics 2017

		Prof John Manners-Bell is Chief Executive of Ti, Honorary Visiting Professor at the London Metropolitan University’s Guildhall Faculty of Business and Law and an adviser to the World Economic Forum. He has over 25 years’ experience working in and analysing the global logistics sector.
		David Buckby Having obtained a Masters in Economics David is now Ti’s resident Economist. David manages one of Ti’s core strengths, that of quantitative analysis of a range of logistics markets, including sizing and forecasting. David contributes to the GSCi portal, Ti Reports and consultancy projects.
		As a graduate in International Relations, Alexander Le Roy brings a variety of knowledge and interest to his role as an Analyst at Ti. Alexander joined the Ti research department in 2013. Since joining the company, he has contributed to 9 top selling Ti reports, in addition to the Global Supply Chain Intelligence portal. The breadth of his analysis includes content on logistics providers, logistics markets and supply chain software. Alexander has developed a significant body of work in the evaluation of log-tech start-ups, and holds a keen interest in the latest technological developments in the industry.
		Violeta Keckarovska is a research analyst with vast experience in the design, implementation and analysis of electronic and person-to-person surveys. Having worked across a number of sectors, including retail, luxury goods and FMCG, Violeta is experienced in gaining valuable insights across brand perception, voice of customer and strategic re-positioning intelligence campaigns for B-to-B and B-to-C clients. As a member of the Market Research Society, Violeta brings best practice in research, insight and analytics across Ti.
		Andy Ralls is a quantitative analyst at Ti. He graduated from the University of Southampton with a Mathematics with Finance degree in 2014. In his studies, he chose a final year project on actuarial modelling and forecasting and enjoyed modules on statistical distribution theory, financial mathematics and macroeconomics. Andy has since worked for a top accountancy firm and for a wealth management company. These experiences give him a strong understanding of company accounts and investment products and has given him a wider understanding of the financial sector.

• The Global Contract logistics market grew by 3.9% in 2016, up from 3.7% in 2015.
• Globalisation of supply chains, the growth of e-commerce and technological innovations have changed the structure of the contract logistics market, with logistics providers trying to retain their competitive edge by expanding their service portfolios either organically or via acquisition.
• While 2016 has seen contract logistics providers pursuing different growth avenues, expanding in high-margin markets was a common growth strategy, with the healthcare and pharmaceutical sector being identified as a particularly lucrative market.
• Supply Chain Operating Networks have provided a means of substantially improving supply chain visibility, but none of the competing vendors yet offers a complete solution.
• Blockchain holds great potential, and is still developing, but it is unlikely to be a silver bullet for supply chain visibility.
• Current battery technologies are insufficient to replace conventional internal combustion engines, and future replacements may take years to commercialise.
• Hydrogen fuel cells appear to be a promising technology, but the jury is still out on whether they will work in practice.
• Even though the level of consolidation in 2016 is estimated to have dropped compared to 2015, looking ahead the outlook for consolidation activity in the industry remains positive.
• For logistics providers to realise synergy effects in mergers and acquisitions, ensuring an effective post-acquisition integration is vital.
• The market is forecast to grow at a real 2016-2020 compound annual growth rate (CAGR) of 4.8%.

Global Contract Logistics 2017 finds that Asia’s outsourcing needs accelerated contract logistics growth in 2016

• The Global contract logistics market grew by 3.9% in 2016, up from 3.7% in 2015.
• Asia Pacific has overtaken Europe as the biggest market for contract logistics.
• Seven of the 10 largest markets grew at a slower rate than in 2015.
• The market is forecast to grow at a real 2016-2020 compound annual growth rate (CAGR) of 4.8%.

11 April 2017 Bath, UK – According to Ti’s Global Contract Logistics 2017 report, the overall contract logistics market is estimated to have grown by 3.9% in real terms in 2016.

Despite stronger global growth in 2016, many developed markets struggled to match even the modest growth rates seen in their contract logistics markets in 2015. This reflects trends in the global economy, where growth rates in advanced economies slowed overall. It would be too easy to match these struggles to the impacts of political events such as the US presidential election and the Brexit vote. In 2016, Barack Obama was still US president and the European Union had 28 members. Instead, weak real wage, productivity and consumption growth dampened global economic growth. Weak retail sales and manufacturing production growth in particular had major effects on the contract logistics market.

This information on its own would suggest an overall struggle for contract logistics in 2016. After all, it is a market associated with formalised retail structures, developed for larger corporations with desires for operational efficiency gains and value-added services. However, emerging markets are taking an ever-larger slice of pie. In fact, 2016 saw Asia Pacific become the largest regional market for contract logistics, overtaking Europe.

Asia Pacific’s strength is a result of a number of factors.

Sustained robust economic growth coupled with continued retail formalisation (thanks to rising disposable income) powers retail contract logistics.

Meanwhile, multinational manufacturers increasingly consider options outside China (especially nearby ASEAN) as production locations, primarily thanks to cheaper labour costs, all the while ingraining Factory Asia more deeply, a spur for the region’s manufacturing contract logistics. That being said, even with rising wages, manufacturing in China is still undeniably strong. As low cost manufacturing has departed, this has been offset by China moving up the chain to more value-added production.

Whilst Europe and North America suffer from both stagnating retail sales and manufacturing production growth, Asia is taking advantage, driving growth for the global market as a whole.

This trend is likely to continue in the medium term. Overall, the global contract logistics market is forecast to grow at a real 2016-2020 CAGR of 4.8%.  Whilst economic growth rates in developed nations are forecast to pick up slightly, they will continue to be far surpassed by emerging markets. None of this is especially new, but it is the reality the market faces.

3PLs in developed nations will need to look at different aspects to improve their services in order to achieve better than average growth. They will need to address the omni-channel retailing needs of retailers that work online and through bricks-and-mortar stores. They will also need to adapt to disruptive technologies, incorporating practices faster than competitors and more than ever, 3PLs need to consider environmental impact, a theme covered in Ti’s Global Contract Logistics 2017 report.

In emerging markets meanwhile, achieving growth should be much simpler, at least in theory. Robust manufacturing and retail sales growth coupled with an increased appetite for outsourcing is a far more favourable backdrop than in advanced economies. The challenge as ever will be to operate successfully in a logistics and supply chain environment which is so often dramatically different.

Ti Economist, David Buckby, commented: “Manufacturing production and retail sales volume growth remain fundamental drivers of contract logistics. Manufacturing expansion in advanced economies remains weak while Asia Pacific, very much still including China, is seeing the lion’s share of growth. Retail is a different story. To an extent, e-commerce has bailed out contract logistics in advanced economies. I expect these trends to continue to shape the background of the contract logistics sector for the next few years at least.”

To find out more about Global Contract Logistics 2017, or Ti’s expertise in the contract logistics market, including analysis of its market size and forecasts broken down by regions and countries, strategies of the major 3PLs, analysis of technologies in the industry, visit the Ti website, or contact Ti’s Business Development Manager, Michael Clover.