The Asia Pacific has emerged as the biggest market for contract logistics, a trend seen to continue in the medium term as the region continues to be the engine of growth for the global market as a whole, according to a new report by Transport Intelligence (Ti).
In Ti’s new report, it estimates that the overall contract logistics market grew by 3.9% in real terms in 2016, up from 3.7% in 2015. The market is forecast to grow at a real 2016-2020 compound annual growth rate (CAGR) of 4.8%.
Despite stronger global growth in 2016, many developed markets struggled to match even the modest growth rates seen in their contract logistics markets in 2015. This, said the report, reflects trends in the global economy, where growth rates in advanced economies slowed overall.
It traced the slowing of contract logistics growth to weak real wage, productivity and consumption growth, which dampened global economic growth.
“Weak retail sales and manufacturing production growth in particular had major effects on the contract logistics market,” said the report.
While this would suggest an overall struggle for contract logistics in 2016, “emerging markets are taking an ever-larger slice of pie,” said Ti.
“In fact, 2016 saw Asia Pacific become the largest regional market for contract logistics, overtaking Europe.”
Asia Pacific’s strength is a result of a number of factors.
One is the sustained robust economic growth coupled with continued retail formalization (thanks to rising disposable income) that is powering retail contract logistics.
“Meanwhile, multinational manufacturers increasingly consider options outside China (especially nearby ASEAN) as production locations, primarily thanks to cheaper labour costs, all the while ingraining Factory Asia more deeply, a spur for the region’s manufacturing contract logistics,” said Ti.
However, even with rising wages, manufacturing in China is still undeniably strong. As low-cost manufacturing has departed, this has been offset by China moving up the chain to more value-added production.
“Whilst Europe and North America suffer from both stagnating retail sales and manufacturing production growth, Asia is taking advantage, driving growth for the global market as a whole,” noted the report.
Looking ahead, Ti says the trend is likely to continue in the medium term. “Whilst economic growth rates in developed nations are forecast to pick up slightly, they will continue to be far surpassed by emerging markets. None of this is especially new, but it is the reality the market faces.”
Ti economist David Buckby commented: “Manufacturing production and retail sales volume growth remain fundamental drivers of contract logistics. Manufacturing expansion in advanced economies remains weak while Asia Pacific, very much still including China, is seeing the lion’s share of growth. Retail is a different story. To an extent, e-commerce has bailed out contract logistics in advanced economies. I expect these trends to continue to shape the background of the contract logistics sector for the next few years at least.”
Photo: Cayco
