Is Maersk’s view of the future too pessimistic?

Maersk appears to be pessimistic about the prospects for growth in the global logistics market. In an interview with the Financial Times on Tuesday (17/7/2013), Soren Skou, the CEO of the container shipping business Maersk Line, commented “the reality is that our industry has to get used to lower growth than we had in the past”. He went on to express the view that in the immediate future the sector would grow by “annual growth of 4-5%” in contrast to the 10% seen in the “boom years” before 2008.

Others in the AP Moller-Maersk Group have recently expressed similar views, suggesting that the future offers annual growth of a “few percentage points”.

The reasons for what might be called the ‘Copenhagen perspective’ centre particularly around the changing nature of outsourcing, with manufacturers and retailers moving away from the reliance on China as a global production location and towards geographically ‘local’ supply chains. Soren Skou also mentioned the additional factor of containerisation reaching its limits.

Such views are not too different to the ideas put forward by Joel Spungin of Merrill Lynch in his thesis “End of the Golden Age of Freight Forwarding ” published earlier this year.

However, not everyone in the industry accepts this vision for the future. For example, the CEO of CEVA, Marv Schlanger believes that both consumer demand and inventory levels are key reasons why sea and air freight volumes have been so miserable. Therefore, a return to more normal levels of growth in the major economies of the world will deliver a recovery in demand for freight.

Yet, Schlanger is in danger of being in the minority, with the expectation of low growth spreading to businesses such as FedEx and UPS. Perhaps this might be a healthy realisation for sectors such as container-shipping that suffer from structural over-capacity born of obsessive fear of losing market share.

But can we be so certain about this emerging ‘perceived view’? Certainly, the world’s major economies are all facing significant crises, with the reality of China’s recent growth only now beginning to be apparent as that economy suffers intensely. However, once these- admittedly enormously large- problems are overcome, what will be the prospects for global logistics markets?

There are two factors which might lead to a degree of hesitancy about embracing the majority view. Whilst the world’s economy suffers from too little demand and too much capacity in many sectors, the underlying picture is of growing GDP per head across almost the entire world, including in previously desperate regions such as Africa.

Secondly, the underlying micro-economics of logistics and supply chain economics are unchanged. The attraction of the economies of scale in production and the ability to improve the efficiency of both production and inventory by utilising transport remain. Such logic is not restricted to production in China and it is surely unlikely that such logic will disappear in a world characterised by new patterns of trade.