Asia business may cover last year losses

Contract logistics activity slowed last year during the downturn and players are now turning to Asia to help lift bottom lines, reports Correspondent Phil Hastings

International contract logistics providers are looking at emerging markets in the Asia-Pacific region for new business development opportunities to make up for some of their revenue losses in recession-hit Europe and North America.

That is one of the trends highlighted in a report on "Global Contract Logistics Through the Economic Downturn'' recently published by Datamonitor, a UK-based multinational provider of business information.

Talking to Cargonews Asia about the report's findings, Sarah Chambers, a UK-based senior analyst, express and logistics, with Datamonitor, said the report confirmed that with the global economic downturn, contract logistics activity around the world had slowed in 2009 compared with the robust performance of previous years. The North American market had declined by just over four percent and the European sector by nearly seven percent. However, the Asia-Pacific region had fared better, experiencing only a 1.3 percent reduction.

"Europe and North America have the largest share in the global contract logistics market but as the Asia-Pacific market is still maturing, a better economic performance in that region is expected," she said. "Other emerging markets in Latin America, the Middle East and Africa will also be sources of growth for global 3PLs (third party logistics providers) expanding their coverage and local players alike."
The report forecast that Middle East, African and Latin American contract logistics markets would grow the fastest in the period 2008-13.

"Japan's recession is likely to affect the Asia-Pacific logistics market negatively, as some of the fast-growing Southeast Asian economies have a strong dependence on the Japanese economy," it stated. "However, opportunities for growth exist in the Indian and Chinese markets as domestic demand, which is relatively unaffected, is quite large in these countries."

One of the likely spin-off developments from the combination of those trends, suggested Krishna Kumar, a senior Datamonitor analyst for logistics and express based in Hyderabad, India, was that Japanese contract logistics providers would look to expand their investment and presence in other Asia-Pacific markets such as China.
"Although we are not predicting any increase in the size of the Japanese contract logistics market, a lot of Japanese contract logistics companies are looking at network expansion," he told Cargonews Asia.

The Datamonitor report said that while there had been a downturn in Asia-Pacific contract logistics market expansion during 2009, the sector would return to "significant growth" in 2010, as outsourcing decisions taken last year begin to take effect. "The Asia-Pacific region is forecast to see rapid increases in the penetration level of contract logistics," it claimed.

Putting some numbers to that projection, the report said the expected 1.3 percent decline in the near US$51 billion Asia-Pacific contract logistics market in 2009 continued a slowdown experienced in 2008 when it had increased by only 4.25 percent.
"In contrast to the 9.5 percent CAGR (compound annual growth rate) registered between 2004 and 2008, the Asia-Pacific contract logistics market is expected to slow down to a CAGR of only 5.5 percent for 2008-13, largely on account of flat growth in Japan."
One other significant feature of the overall Asia Pacific contract logistics market, said Chambers, was that at present, the management of such operations appeared to be developing primarily on a national basis rather than regionally as was now often the case in the EU (European Union).

"I think that at the moment there is less possibility for the development of contract logistics in Asia Pacific on a regional basis. I have not yet seen any examples of multi-country arrangements there of the sort you get in the EU. Perhaps as the industry develops, though, we will see more of that."

Commenting specifically on the Chinese contract logistics market, which it valued at US$6.4 billion in 2008, the report said nearly 92 percent of that activity involved transportation and warehousing. It confirmed that sector was experiencing ongoing growth, having achieved nearly 21 percent in 2008 and almost 19 percent in 2009.
"The contract logistics sector is in the middle of a boom phase in China on account of the country's strong economic growth. It has increased by nearly 100 percent since 2004 and is expected to more than double again by 2013," stated the report.

However, the penetration of contract logistics in China was still quite low. "While multinational companies are contracting out their logistics activities, domestic firms are yet to resort to doing this to any meaningful level,'' the report stated.
Regarding India, the report said that country's contract logistics market was valued at $1.2 billion in 2008. Transport and warehousing accounted for nearly 93 percent of that market "as contract management activities are still uncommon in the country".
Datamonitor said the contract logistics sector in India was experiencing a similar boom phase to that in China, as global players had only recently started strengthening their presence in the local market.

In 2008, India's contract logistics growth had been a "robust" 18.5 percent and in the period 2004-07, the market had experienced a CAGR of just over 38 percent.
"With its economy demonstrating resilience during the global downturn, India is improving its stance as a production location. This brings increased opportunities for 3PLs and continued impressive growth is forecast," said the report.

Another developing feature of the Indian contract logistics market, added Kumar, was the maturing of the in-house logistics arms of large industrial conglomerates into "full service players which are not only servicing their own companies but also other companies in different sectors".

(source: Cargo News Asia)