- 17
- JUN
- 2010
Is there a global logistics recovery?
Author: Jonathan Webb - Categories: Economy & Current Affairs
The fate of the wider economy is closely linked to the prosperity of the logistics market. The sector has produced many reports and figures, and yet it is difficult to disentangle these to determine global economic significance.
The logistics sector is often seen as a bell-weather for the broader economic climate, with transport and distribution companies' profits crashing during the global financial crisis.
During the height of the global recession, in January 2009, port shipping rates between Singapore and Europe fell to zero. A historic first. In a similar move, the Egyptian authorities froze freight rates through the Suez Canal this January to overcome the global recession. The question is, however, to what extent does recent data reveal a sustained global recovery?
There are some indications that the transport sector is on the move again. The International Air Transportation Association (IATA) recently reported an air cargo recovery at an annualised rate of 26%. Dubai airport has seen air traffic increase by 23% in the last month alone.
Maersk has announced that there is now an "unprecedented shortage" of containers; as Asia-Europe trade boomed, the shipping company was obliged to acquire 50,000 extra 40-foot containers to meet demand. The industry is also witnessing large capital investment projects: some ports are expanding (such as Rotterdam) while others are investing further in green technology (such as Seattle).
Latest figures reveal logistics growth in Brazil, Poland, Saudi Arabia and Taiwan.
On a regional level, the picture is a little mixed. The IATA forecast US$2.2 billion profits for Asian airlines this year, but European carriers will lose US$2.5 billion. Notwithstanding volcanic ash clouds, these figures reflect a sluggish recovery in the continent, and even indications that Europe is slipping back into recession.
The rapid rebound is, in part, a product of the brutal cut-backs in capacity during the recession. The large percentage increases begin from a low base-level, and IATA reports that air cargo rates are only 75% their pre-recession rates.
A recent report on the US logistics market produces more negative findings. In 2008, transport and logistics accounted for 9.3% of national GDP. In 2009 this proportion fell to 7.7%. Freight rates dropped by 20% over the year. The study found that the use of new supply chain structures enhanced companies' exposure to market vulnerability, defending against rapid market falls.
The Dow Jones Transportation Average, an index of logistics companies, is down 4% since the start of May – this includes 13 airline stocks at a year-peak. FedEx shares fell by 2% yesterday, as the US delivery firm posted lower profits than expected.
It is perhaps easy to read too much into the signs of logistics growth. These must not be confused for recovery, but as a sign of a recovering sector. There are still many indications of a troubled sector. As yet, unfortunately, it is still unclear whether the air cargo industry has taken flight, or if the global sea shipping is still in deep water.
Comments
Shawn in Melbourne
Fri 18 Jun 2010 11:53
I think the supply chain market needs to be reviewed not only in terms of volume but also in terms of how investment dollars are being used. There is a sense that companies are making investments in supply chain solutions without necessarily significant growth in volumes and staffing to support operations.