2008 set to be challenging for the logistics industry
The global logistics industry is set for a challenging year in 2008 as the effects of the credit crunch filters through to consumer spending. Margins in the industry are already thin, but shippers can make moves now to improve their chance of future success.
Logistics companies are set to have a difficult 2008 according to a new report by independent market analyst, Datamonitor. The report State of the Industry – Logistics predicts that as the fallout from the global credit crunch becomes clearer, margins in the logistics sector are set to come under further pressure. However, the report highlights several trends outside the macroeconomic environment that are set to have a large impact on the industry. According to Datamonitor, companies can make strategic moves now that will not only improve their chances of surviving, but also maximize their chances of reaping potential future rewards.
The global economy is on a knife-edge after the effects of the credit crunch
2007 was indeed a year of two halves. In the first six months, the major concern for the global economy was that it would overheat through its rapid expansion, driven by continued consumer spending in the larger economies. However, the crisis over the US sub-prime market rapidly tightened the tap on the liquidity market, which quickly dampened global optimism.
The US has been hit particularly hard. While it is not technically in a recession yet, there is no doubt that the economy has slowed considerably since mid-2007. This has had an adverse effect on confidence around the rest of the world, particularly in countries that rely on the US for trade, such as Japan. Coupled with fears over inflation in China and the continued rise in oil prices, the short-term future for the global economy is on the proverbial knife-edge.
“An outright global recession is unlikely, but what is fairly certain is that 2008 will be a harder year for consumers in the larger economies in the world and as such this will have a knock-on effect for the logistics market,” says Chris Morgan, Lead Analyst within Datamonitor's Logistics and Express division and author of the study.
The full effect of the slowdown has yet to hit the logistics industry, as 2007 was a good year, although margins are still slim
Although the credit crunch began to squeeze global markets in the second half of 2007, this has yet to filter through fully to consumer spending and subsequently to the financial results in the logistics sector. Consequently, third party logistics players (3PLs) recorded healthy increases in both revenue and operating profit during the year.
However, operating margins are still at low levels. Datamonitor's State of the Industry – Logistics brief shows, the average across the companies analysed was a mere 3.5%. While this is an improvement from 2006, it is still an unsustainable level for the industry in the medium to long term. Indeed if the global economy does falter, this could well lead to a fresh wave of consolidation in the market as companies struggle to survive. Consequently, it is vital that 3PLs move now to fully capture the trends that are set to drive the market in the future, given that there is little they can do about the macroeconomic environment.
3PLs can exploit several trends that are set to have a significant impact on the logistics industry
The global logistics landscape is set to change. Technology will play an increasingly important role and Radio Frequency Identification will eventually be seen as a standard product offering. The environment has rapidly risen up company agendas, requiring 3PLs to examine their Green Supply Chain options. There will also be a shift in geographic focus, as while China will still enjoy its position as the main manufacturing region in the world, other areas of the globe will eat away at its market share. This will further diversify supply chains and increase the demands made by clients on logistics providers.
3PL costs are also set to rise due to the continued high oil price and coupled with any slowdown in economic growth, this will result in companies seeking new ways of creating competitive advantages in order to capture market share. This will cause 3PLs to analyse the option of setting up collaborations with both their customers and their competitors, as well as considering their ability to make strategic acquisitions in the market.
“While the top companies have seen revenue increase in the past years, not all of them will survive in the medium-term as the market consolidates. This is inevitable given its current structure”, says Morgan. “Those that survive the next phase of the logistics revolution will be the companies that have a solid grasp of both their own capabilities and the market situation, particularly in relation to their customers, which will help them be proactive rather than reactive in identifying and exploiting market opportunities.”
Datamonitor's State of the Industry – Logistics brief is an essential overview of the sector and its future. The brief analyses the current economic state of the major regions in light of the recent credit crunch and the impact that the global economic slowdown has had on the revenues of the top global logistics players. It also identifies the major trends that will drive the logistics industry going forward, as well as the steps companies can take now to help improve future success.