The global market for contract logistics grew by 4.9% in real terms in 2018, and is expected to grow by 4.7% in 2019, but rates of expansion vary considerably by region.
China’s growth rate for example is far in excess of the global rate. Its contract logistics market has grown to support its booming manufacturing sector. Now a growing consumer market led by internal investment and growing wages has also created a vibrant opportunity in retail contract logistics. Within this, its e-commerce market is growing at a substantial rate and this is providing significant opportunities for 3PLs.
As China steams ahead in advanced manufacturing fields such as robotics, IoT and 3D printing as set out by the Made in China 2025 programme, it will create new opportunities for 3PLs to provide services to manufacturers over the longer run. The more dominant China becomes in these sectors, the greater its need for contract logistics provision will be.
So despite the significant ongoing challenges facing the Chinese economy, there are a plethora of opportunities available for contract logistics providers.
That is not to say its economic slowdown and ongoing issues with the US will not play a part in shaping the contract logistics market in the region. Ongoing trade tensions between China and the US could accelerate the movement of manufacturing bases to South-East Asia, creating new demand for contract logistics provision here.
But even if the dispute is short-lived, the region shows enormous potential as a manufacturing hub and thus related value-added logistics provision is expected to grow at a substantial rate. This is not least due to the emphasis these economies have placed on manufacturing. Thailand’s plan to develop its Eastern Economic Corridor will see it invest heavily in three provinces off the coast of the Gulf of Thailand, creating a hub for technological manufacturing and services with strong connectivity to its ASEAN neighbours by land, sea and air. This will aim to encourage R&D and ultimately production in electronics, automatic systems, industrial robotics, and service robotics. Vietnamese authorities meanwhile have nurtured a positive working relationship with Samsung, meaning it is now the phone maker’s largest production base. In turn, it now accounts for a quarter of Vietnam’s exports. Samsung’s success here has encouraged domestic manufacturers and suppliers to set up too. Vingroup, the biggest property developer in Vietnam, announced plans to produce smartphones starting in 2018, while home electronics maker Asanzo is set to produce 600,000 smartphones in 2018, up 50x from the previous year. Increased production in these markets will undoubtedly create a growing need for third party logistics services.
Elsewhere, the growth dynamics of the market are quite drastically different. Europe’s limp economy provides little impetus for contract logistics market growth. Germany’s weak manufacturing output has been bad news for 3PLs, and its knock-on effects have been felt across much of the continent. Meanwhile Brexit uncertainty is providing significant challenges not just in the UK, but also across Europe.
In the US, the story in 2018 was reasonably positive. This has been fuelled by a stronger economy. IMF data states that GDP growth in the US was 2.9% in 2018, an increase of 0.7 percentage points from 2017 and a rate unmatched since before the financial crisis. In addition to higher demand, capacity issues led to a significant increase in logistics costs. Driver shortages and new ELD regulations have led to a shortage in trucking capacity. Higher online retail sales have also pushed up demand for warehouse space. According to the CBRE, in Q3 2018, vacant space in US warehouses fell to its lowest level since 2000. This has created a challenging environment for contract logistics providers, but ultimately one in which they can add significant value through finding efficiencies.
The global view of the market is therefore particularly interesting. Despite being the same market by definition, regional growth rates and their fundamental drivers underline the significant differences within the €211bn global contract logistics market.
Source: Transport Intelligence, June 4, 2019
Author: Andy Ralls
Ti’s contract logistics market sizing data includes market sizes, growth rates for 2018, projections for 2019 and 5-year forecasts to 2023. Similar data is available for the Freight Forwarding, Express and Small Parcels and European Road Freight markets. To find out more about this data, click here.
