The most recent evidence is from Cathay Pacific Cargo, which is reported to be briefing clients that this year’s peak season will not be as strong as usual. Admittedly this is heavily influenced by economic conditions in both China and Hong Kong, but it fits the mood music in much of the rest of the world.
Marine container freight spot rates on the trans-Pacific route have been falling for some time, although container shipping line results continue to reflect the strength of the contract-rate market segment. Crucially there are signs that congestion in container ports is improving rapidly. For example, at the once-troubled port of Los Angeles, the senior management claims that there has been a fall in the “backlog of ships almost 90%”. The port has again postponed the implementation of a ‘dwell fee’ on containers at terminals due to a “combined decline of 46% in ageing cargo on the docks”. The situation on East Coast container terminals appears to be improving similarly, and there are reports from European ports on the Hamburg-Le Havre range that congestion has also improved.
The potential of this decline in congestion to release shipping capacity onto the market is considerable, and it may already be playing a role in driving-down spot rates. If congestion continues to improve, it might dramatically affect rates, with the ‘blanking’ activity of container lines suggesting they are already aware of this.
As with the boom in demand seen in 2020-2021, much of the force behind these developments is associated with consumer behavior in the US. Admittedly the port of Los Angeles continues to see higher container through-put; however, shippers’ inventory management operations are more under control, enabling container, demurrage and warehousing systems to right themselves. As a result, major retailers have pursued significant inventory sell-offs and are cautious in their buying behavior, moving towards Christmas in the face of what looks like a recession. Obviously, this is informed both by energy price increases and higher inflation.
None of these factors on their own, either an operational improvement, muted US economic signals or continued instability in China, will drive falling rates, but they suggest a marked changed environment for logistics markets.
Download Ti’s Global Ocean Freight Rates Tracker for Q3 2022 for an in-depth look at the key data driving rate development in global ocean freight, covering major transpacific, transatlantic and Asia-Europe lanes.
Ti’s latest report, Global Freight Forwarding 2022, shows that in 2021 the global forwarding market rebounded and exceeded its pre-pandemic levels. However, limited capacity and record-high freight rates present a challenging market for shippers, as well as opportunities for extraordinary ‘uplift’ in the profitability of freight forwarders.
The global freight forwarding market grew by 11.2% in real terms during 2021, the fastest expansion in a decade. The market is forecast to grow 5.7% in 2022 and at a 3.7% CAGR over the five years to 2026.
2022 freight forwarding growth will be driven by air freight, which is forecast to grow by 6.1% in real terms.
2026 forecasts are more pessimistic due to inflation, the war in Ukraine, and consumer spending slowing down.
The air forwarding market is forecasted to exhibit slightly faster growth, expanding at a 4.0% CAGR from 2021-2026, while the sea forwarding market is expected to grow slightly less quickly at 3.6% CAGR over the period.
Kuehne + Nagel and DSV lead the global freight forwarding market. The two market leaders have successfully integrated acquisitions in recent years which has helped both to top the list.
The entrance of shipping lines into the acquisition market has created a new driver of industry consolidation, not least due to the carriers’ almost unlimited funds and access to ‘cheap’ money.
Digital forwarders must combine smart technology with operational experience to be game changers in the industry. Achieving both objectives while remaining profitable will be a challenge, especially if access to capital becomes more limited in the future.
After experiencing one of its most challenging years to date amid the Covid-19 pandemic, the global freight forwarding market bounced back strongly and grew by 11.2% in real terms in 2021. This is the fastest growth rate since 2011, bringing the market value to €269,656m.
The market’s expansion was driven by global trade which reached new record highs during the year as recovery from the Covid-19 pandemic boosted demand. As well as the phasing out of pandemic-related restrictions on economic activity, government support schemes and economic stimulus packages introduced in many countries remained, keeping demand for goods at elevated levels. Factors such as the expansion of the e-commerce industry and the rise of free trade agreements have also been contributors to the growth of the global digital freight forwarding market in 2021.
As the drivers of the growth momentum are likely to gradually abate, global trade growth is expected to moderate in 2022. As a result of this continued but weakened global economic recovery, the global forwarding market is expected to grow at a slower pace of 5.7%. Continuing the trend from 2021, growth will be driven by the air freight forwarding market, which is forecasted to grow by 6.1% in real terms. The sea freight forwarding market will have to endure more months of challenging conditions caused by the capacity crunch as new capacity is not set to kick in till 2023. It is set to grow at 5.2% in 2022.
2026 forecasts are more pessimistic than previously as inflation challenges intensify, the war in Ukraine threatens global energy supplies and consumer spending slows further. As a result, the global freight forwarding market is expected to grow at a 3.7% CAGR over the five years to 2026. The air forwarding market is forecast to exhibit slightly faster growth, expanding at a 4.0% CAGR, while the sea forwarding market is expected to grow slightly less quickly at 3.6% CAGR over the period. Increases in cross-border e-commerce do however provide a bit more optimism, along with the return of capacity via passenger flights after the ending of Covid restrictions.
The report also provides a snapshot of the funding scene in the digital forwarding sector and discusses the impact that the recent surge in investments will have on established start-ups and new market entrants. The report analyses the competitive landscape in the digital freight forwarding market and compares digital forwarders against one another based on their revenues, global reach, transport mode and freight transported. The findings of Ti’s latest Digital Freight Forwarding Survey 2022 serve to assess the market penetration and outlook of digital forwarders and identify the capability gaps digital forwarders need to close.
Furthermore, the findings from Ti’s Global Freight Procurement 2022 survey provide insight into the latest logistics purchasing behaviour trends and the procurement strategies shippers are employing to better navigate the unpredictable market volatility.
“The global freight forwarding sector has been plagued by a number of supply and demand-side shocks in the past year, driving instability in the market,” said Viki Keckarovska, Ti’s Senior Research Analyst. “Despite all economic indicators pointing towards continued strong demand for cargo, capacity constraints result in lost growth opportunities. Demand for capacity continues to outstrip supply, contributing to increased freight rates and consequently increased yields and revenues among forwarders. Driven by these challenging market conditions, shippers are re-assessing their freight procurement strategies and contractual relationships with LSPs to adjust to the ever-changing environment. Finally, the digitalization trend in the forwarding industry, which was already gathering pace before the pandemic, has been accelerated further by the crisis, with the adoption of digital forwarders, online freight booking platforms and marketplaces increasing threefold since 2019.”
Far from still being devoted to just paper post and parcel deliveries, recent strategic choices by some European Post Offices signal a changing role and a desire to tap into fast-growing markets and sectors which have, traditionally, been occupied by LSPs. A couple of recent examples of this come from Southern Europe.
Correos
In January 2022, Spanish post office Correos launched Correos Frío to offer temperature-controlled shipments by using isothermal boxes with features including monitoring of temperature and humidity in real-time. The solution is aimed both at B2B and B2C customers, with special attention to the pharma and food sectors.
In terms of the pharma vertical, Correos said it will meet laboratories and distributors’ needs to deliver pharma, healthcare and cosmetic products to hospitals, clinics, or health centres. The service will also allow hospital pharmacies to deliver products directly to patients’ homes.
Regarding the food sector, Correos Frío will offer solutions to facilitate wholesalers, supermarkets, local retail businesses and food markets with the distribution of fresh products. Additionally, in terms of B2C deliveries, the company will create a specific service for companies in the e-commerce and gourmet sector in need of temperature-controlled transport in the Peninsula, including Portugal and Andorra.
Correos Frío’s new services together with the launch of Correos Logística earlier in January 2022, which is focused on e-commerce services including value-added ones, show the Spanish post office’s desire for continuous expansion into the e-commerce logistics market whilst also tapping into fast-growing vertical sectors.
On the one hand, according to a March 2022 report by ReportLinker, there is a major growth potential for online pharmacies in Southern European countries such as Italy and Spain. The same report states that the online pharmacy market in Europe was dominated by EU-5 with the highest revenue share of 59.5% in 2021, with expectations that the European e-pharmacy market will grow at a CAGR of over 17.6% during the period 2022–2027.
Also, regarding grocery deliveries, in Spain, the number of online food and beverage shoppers is estimated to grow at a 2019-2024 CAGR of 7.7% to reach 11.6m in 2024 and more than 12m in 2025 according to Statista.
Source: Statista Note: * values for 2020 and onwards are forecasts
It is not by chance that in February 2022, Amazon.es also announced the expansion of its Fresh service (delivered by Prime) to Valencia and the surrounding areas. This has added to the service launched in Madrid and Barcelona in 2021, following the company’s objective of serving millions of Amazon Prime members in Spain.
Poste Italiane
Targeting fast-growing logistics markets seem to be the focus of the Italian post office too. In March 2022, Poste Italiane (Poste) announced the signing of an agreement for the acquisition of a majority stake in healthcare logistics specialist Plurima. The Italian company is involved in hospital logistics and management services for public and private hospitals, including specialised transportation of biological samples. Matteo Del Fante, Chief Executive Officer, and General Manager of Poste commented that the acquisition is part of the company’s 24 SI strategy envisaging a focus on its contract logistics business with the aim of completing the transition to a wide-ranging logistics model.
Overall, the move breaks away from the express and small parcels sector that Poste has traditionally served. However, it is justified by the company’s strategy. Additionally, according to Ti, in 2021 Italy was one of the fastest-growing contract logistics market in Europe and it will be amongst the five major markets in the region in 2026 according to forecasts. Furthermore, according to Fabio Mioli, Managing Director of South Europe for UPS Healthcare, innovations in the pharma sector also in Italy are leading to strong growth of biological and specialised medicines. These require specific management logistics, including compliance with stringent storage requirements at even very low temperatures, attention to materials and packaging components, and regulatory compliance. Thus, UPS Healthcare is also investing in network expansion and cold-chain transport services both nationally and internationally. The plan includes the expansion of its specialised temperature-controlled fleet to five more regions of Italy, namely Emilia-Romagna, Tuscany, Veneto, Friuli-Venezia Giulia, and Trentino-Alto Adige – which are added to Sicily, Calabria, Lombardy.
Poste also stated that it aims to tap into the opportunities linked to a greater trend towards outsourcing hospital logistics and micro-logistics. For this purpose, it will leverage the experience gained with the COVID-19 vaccine delivery, carried out through its SDA Courier company. It is worth wondering if, like its Spanish counterpart, the Italian Post Office will eventually turn its attention to the fast-growing B2C pharma shipments, as well as the online grocery segment, where, in Italy, there are players including Deliveroo Hop or Glovo. Should the company make that move, it would be also favoured by a stronger proprietary online payment system further to the February 2022 LIS Holding acquisition.
Although this is still unclear at this point, it will be interesting to see which other strategies post offices worldwide implement to capture more of the value chain. Watch this space!
Transport Intelligence’s (Ti) latest report, Global e-commerce logistics 2022, shows that rapid growth in the market continues with growth of 19.9% in 2021, though growth has slowed from 2020’s Covid-19 induced peak.
The global e-commerce logistics market grew by 19.9% in to reach a value €441.47bn in 2021.
Global e-commerce logistics market to grow at a CAGR of 11.8% from 2021-2026
Cross-border e-commerce market forecasted to grow at a CAGR of 10.65% to 2026
Global e-fulfilment market made up 46.8% of the total for e-commerce logistics, with last mile making up the remaining 53.2% in 2021
E-fulfilment service providers have broadened their service offerings to capture more of the e-commerce value chain
Ti’s latest data shows that, regionally, in 2021 Asia Pacific is still the biggest e-commerce logistics market, followed by North America and Europe. However, in 2026, Ti forecasts that North America will be the biggest e-commerce logistics market, with the US, Canada and Mexico all experiencing nominal 2021-26 CAGR above the global average.
There are expectations that the Asia Pacific’s market growth will be affected by both the Chinese and the South Korean market’s 2021-26 CAGR slowing down below not only the global average but the regional average of 7.1% too. Their percentage of online retail sales as a percentage of total sales, at 28.0% and 24.5% respectively, are testimony of mature markets. In addition, the parcel pricing war we’ve seen in China has hampered overall growth. However, the two countries will remain amongst the biggest e-commerce logistics markets globally on the back of a high number of e-shoppers.
A similar situation is likely to happen with the UK’s e-commerce market, with online sales as a percentage of total retail sales standing at 26.6% as of December 2021 as reported by the UK Office of National Statistics. The UK’s e-commerce logistics market is also expected to be affected by Brexit too over the next five years, but it will maintain its place as the third e-commerce logistics market globally after the United States and China.
Ti’s new research also shows for the first time the growth of the developing cross-border e-commerce logistics market, which is forecast to grow at a CAGR of 10.65% from 2021-2026. This growth is expected to continue as consumers seek luxury goods that may not be available within their own countries. However headwinds remain, particularly in terms of compliance with tax and customs regimes surrounding cross-border movements.
The new report also highlights how the e-commerce logistics market is broken down between e-fulfilment and last mile delivery services. In 2021 the global e-fulfilment market was valued at €235.42bn and represented a total of 46.8% of the market. Whereas the larger last mile market had a total value of €253.10bn and constituted the other 53.2% of the market.
Ti’s latest report also drills down further in to the e-fulfilment market, highlighting the structural changes which have taken hold since the beginning of the pandemic. Showing how fulfilment service providers from LSPs to software providers have broadened their service offering to capture more of the e-commerce value chain.
Ti’s Head of Commercial Development, Michael Clover, said: “In 2021 e-commerce has been one of the key growth sectors for logistics and we’ve seen some spectacular revenue growth from individual service providers. Overall growth has slowed since 2020, with growth levelling off as the extraordinary conditions for e-commerce growth brought about by the pandemic unwind, but growth is still above pre-pandemic levels. The forecast out to 2026 portrays a maturing market where online retail penetration levels are sustained in the most mature markets between 25-30% and other markets move up to this level.”
DHL has reported a 22.5% rise in revenue to €81,747m for 2021. The Group has characterised its results as being “on another level,” with new records set in revenue, earnings and a company that is “more profitable than ever”.
At €8bn, operating profit is up 65% year-on-year while the revenue figure is the highest in the company’s history. According to DHL, “Demand for the Group’s logistics solutions reached a new all-time high last year, driven by the significant increase in global trade and continued strong e-commerce with further growth in shipment volumes. That, in turn, enabled the more efficient utilisation of network capacities.”
At a segment level, DHL’s results are strong. At 6%, revenue growth in the Post & Parcel Germany division might well have been the headline in a pre-Covid world. But in 2021, it is far outstripped by double-digit growth elsewhere. Supply Chain (+10.5%), eCommerce Solutions (+22.8%), Express (+26.6%) and Global Forwarding, Freight (+44.4%) all saw top-line growth explode, “driven by the significant increase in global trade and continued strong e-commerce with further growth in shipment volumes,” according to DHL.
Post & Parcel Germany saw record volumes of 1.8bn parcels, up from 1.6bn in 2020, which drove revenue growth. In eCommerce Solutions, double-digit growth was recorded in “almost all” regions, pushing profitability to more than double to €417m. Express saw revenue jump from €19.1bn in 2020 to €24.2bn, as TDI volumes rose 10.3% and average shipment weights were also higher. The operations in Global Forwarding, Freight resulted in revenues that totalled €22.8bn. Air and sea volumes were up 25.7% and 8.7% respectively, and with high demand driving rates higher, profitability grew as EBIT more than doubled to €1.3bn. CEO Frank Appel stated “2021 was an extraordinary year…E-commerce has continued to grow, and global trade has recovered very quickly. We profitably transported record volumes of freight, express shipments, parcels and operated more efficiently than ever before.”
Perhaps though, it’s DHL’s view of the future that matters most. Throughout its reporting, it’s clear that DHL expects 2021 results to represent a base, not a peak. Presenting the results, CFO Melanie Kreis stated “As reflected in the newly-issued 2022 and 2024 guidance, DPDHL Group is confident to hold and grow earnings from this new level.” Investment lies ahead too with plans to spend €4.2bn across the business. Eleven new aircraft will enter service in 2022, with a further six to follow. DHL Express has plans to “modernise and expand” its German network with warehouse automation and spending towards carbon neutrality also on the agenda. With a strong set of results, DHL plans to take advantage of the rising tide.
Ecommerce logistics costs as a proportion of sales look set to rise in the coming years, driven by an increase in the volume of returns, a higher proportion of premium deliveries, and the cost of labor, according to the findings of an ecommerce logistics survey released by Transport Intelligence.
108 retailers and logistics companies around the world took part in the survey which was conducted over the holiday period in 2017-18.
Despite the cost increases the survey also found that shippers are unable or unwilling to adapt their pricing model to compensate for these pressures. For example, even though premium deliveries are the second most important cost driver, only 12 percent of shippers said that they would be prepared to charge a higher rate for such deliveries.
This reluctance is likely to be rooted in customers’ delivery expectations and in the highly competitive nature of the market. So, with retailers being increasingly forced to compete with rivals on cost and speed of delivery, it is likely that the common practice of subsidization of shipping will continue.
“The ecommerce logistics sector faces multiple challenges as shippers and logistics companies struggle to come to terms with an ever-changing market environment,” said Ti’s analyst Violeta Keckarovska. “Although volumes will continue on their stellar path, our survey makes it clear that harnessing this growth to provide sustainable profitability is still the key challenge for the industry.”
The survey also looked at the factors impacting on the profit margins of last mile carriers. As well as the increasing cost of driving and warehouse staff, respondents identified deliveries to rural areas, where drop density is far smaller, as a threat to profitability.
Looking at the next five years, the main threats to logistics companies’ ecommerce operations were perceived to be providing capacity in peak times as well as the challenge posed by disruptors such as Amazon and Alibaba. The increased demand for same-day delivery was also identified.
The survey also highlighted the difference in investment priorities between shippers and logistics companies. For shippers, the highest priority is improving visibility in their supply chains through improved tracking, a service undoubtedly seen as a competitive advantage and a vital service attribute for end-recipients. Logistics companies, meanwhile, see as their main priority the development of alternative delivery networks which will provide convenience and choice to consumers. By delivering multiple parcels to banks of lockers or to convenience stores for collection by the buyer this also reduces costs and eliminates the risk of an end-recipient not being at home.
