Contract Logistics – Past and Future

The growth rate of major economies such as US, Europe and Japan were less than 1% during 2009.  Naturally the impact of this financial uncertainty will have impact on the contract logistics as well.  Contract logistics which was growing around 10.0% during 2005 to 2006 period reported early setbacks in 2009 with a 1% growth rate fall and further 4% plummet by 2008 and ultimately 8.2% negative growth by 2009.  This is a disaster and this is one way of understanding the impact of economic recession on contract logistics.

Outsourcing penetration rate:

The outsourcing penetration rate was growing marginally in spite of financial recession. In my opinion the real growth of logistics outsourcing should reflect in the penetration rate.  As long as penetration rate is more or less static, the logistics outsourcing world-wide is not growing.

When we review by regional performance, Western Europe recorded highest penetration rate of 30% followed by USA 20.7%. China presents the greatest opportunity for contract logistics with a lowest penetration rate of 2.7%.

Market Share:

The global contract logistics market is still fragmented in spite of several years of consolidation.  DHL leads the pack with 8.4% followed by CEVA at 2.3% and the third position was taken by KUEHNE+NAGEL based on top-line revenues.

Interestingly if we evaluate the performance of these companies based on their margins, CEVA stands first at 5.7% followed by KUEHNE+NAGEL at 1.7% and DHL ended with negative (-)1.66% margins.  Other notable performers included, UPS SCS at 3.98%; DSV at 3.39%; and Ryder at 3.13%.

Margins of almost all players showed negative growth whereas KUEHNE+NAGEL shown a 16.4% growth in the margins and Con-way – Menlo logistics has improved from negative margin of 1.56% to 2.13% in spite of financial recession in 2009.  Whereas the market leader DHL improved the margins it’s position by reducing the losses from -6.7% to -1.66%.

Contract Logistics Market by Region:

Three dominant regions contribute 93.3% global share of contract logistics.  Western Europe contributes 37.2%, Asia Pacific 28.3% and closely followed by North America at 27.8%.  One would be surprised to know that Japan contributes 38.8% to the Asia Pacific market and followed by China at 24.2% and South Korea at 9.2%.  This could soon change with phenomenal growth anticipated in China, India and South Korea by 2013.

The negative growth seen in Contract Logistics less felt in Asia Pacific at 6.5% and whereas Western Europe recorded 9.5% and North America was closely behind WE at 9.4% negative growth.

Looking into Future CAGR (2009-2013):

Future for contract logistics seems to be promising with an impressive projected growth of 9.5% globally.  The promising regions/countries include Central & Eastern Europe with an impressive CAGR of 18.7% is followed by Mexico 13.1%  and China is expected to grow by 20.6% and India at 15.2%.

Top 3 Leading Logistics Service Providers by Region:

Asia Pacific list is topped by Hitachi Transport followed by Sankyu Inc. and Mitsubishi Logistics Corporation.

Europe top three services providers based on their top line revenues include, DHL Supply Chain, Wincanton, and CEVA.

North America top three service providers included DHL Supply Chain, Penske Logistics and UPS SCS.

Focus: Asia Pacific

Review of top five economies in Asia reveals that contract logistics market size growth in the next four years will be propelled by China, India, South Korea, Australia and Japan.

The Contract Logistics CAGR (2009-2013) of Asia Pacific Countries:

The future looking promising, contract logistics is here to stay. This means job creation, make economies to expand, and infuse flexibility to business and make them to focus on core competencies. Let me  close with a compelling quotation, “If you deprive yourself of outsourcing and your competitors do not, you’re putting yourself out of business.”

Data Source: Transport Intelligence Ltd.