After a decade of growth, the global contract logistics market contracted by 3.3% in 2020. However, the market is expected to rebound with 6.5% growth in 2021. In fact, Ti’s Covid Recovery Tracker, which measures market growth against pre-pandemic levels, shows that the market will have recovered all the revenues lost last year by the end of 2021 and actually achieve growth of 2.9% over the 2019 market size.
A positive ending to 2020 helped prevent growth being any weaker. Despite new waves of the pandemic becoming apparent in Europe and North America, the hits to the market have been much less severe than during the first wave in Spring 2020.
There are a couple of key reasons for this. Firstly, nations have developed lockdown strategies to reduce health risks whilst still maintaining large elements of economic activity. For instance, the majority of factory closures seen during the first half of 2020 were not repeated towards the end of the year. As a result, 3PLs have continued to provide the warehousing, distribution and value-added services, such as sequencing or CKD operations, that were disrupted in the Spring.
In addition, pent-up demand has continued to drive economic growth, producing further demand for contract logistics services. Through early lockdowns, even at the height of economic difficulties, household savings increased amid the shutdown of large parts of retail, with government support keeping unemployment at low levels. In the EU27 the household saving rate increased to 23.9% in Q2. This contrasts with the long term average rate for the EU27 being around 12%. In China, the rate reached 37%, 5% higher than the average in 2019. In the US, household savings reached a peak of 33.7% in April 2020, well ahead of the average for 2019 of 7.5%. As economies re-opened, consumers began spending again at healthy rates. As this demand has unwound, spending has focussed largely on goods purchases, with areas like consumer electronics, sports equipment and DIY having performed particularly well. This contrasts with many service sectors, particularly hospitality, which have suffered. This re-orientation of consumer spending towards goods has been beneficial to the contract logistics sector in its recovery.
Although the turnaround was not strong enough to prevent a sharp contraction in the market in 2020, strong levels of consumer spending bode well for the years ahead. As vaccination efforts gather pace and economic growth returns, the global contract logistics market is looks set to benefit. The potential for spending to re-orientate away from goods expenditure and towards the services sector weakens prospects slightly, but nevertheless, the economic rebound will be sufficient to drive strong contract logistics growth of 6.5% in 2021.
In fact, Ti projects that the global market will have recovered lost revenues by the end of 2021, with our Covid Recovery Tracker indicating that the market will be 2.9% larger compared with pre-Covid levels (the market size in 2019 at prices and exchange rates constant at 2020 levels). However, not every region is expected to see such a recovery. Europe, the region hit hardest by the economic consequences of the pandemic is still projected to languish behind 2019 levels. Conversely, Asia Pacific looks set for a strong recovery. Over the longer term, emerging markets with growing formal retail sectors and those shifting from basic to high-end manufacturing are areas in which contract logistics is most likely to thrive.
Aside from the economic effects, Covid does not look set to damage shippers’ propensity to outsource. In fact, at a time where many will be struck for cash, freeing up capital and focussing on core competencies by taking logistics off the balance sheet can be an attractive proposition. Fresh memories of assets severely under-utilised at the height of lockdowns add to argument for outsourcing. Meanwhile, as bottlenecks have been a key characteristic of supply chains over the past year, the need for effective inventory management systems, a crucial area for contract logistics providers, has become ever-more important. Confronting these challenges, the use case for contract logistics provision remains compelling.
Source: Transport Intelligence, March 11, 2021
Author: Andy Ralls
Ti’s latest Contract Logistics Market Sizing data for all regions and countries is now available on the Global Supply Chain intelligence (GSCi) platform. This includes global, historical growth rates, market sizes, 1-year growth projections and 5-year forecasts. To read more about the growth of the market please download Ti’s latest whitepaper: Post Covid-19 Forecasts: Global Contract Logistics Growth 2020-2025.
Or, for more detailed market forecast data, please contact Ti’s Head of Commercial Development, Michael Clover about GSCi at [email protected]