Asia Accelerates Contract Logistics Growth

The overall contract logistics market grew by approximately 3.9 percent in real terms in 2016, according to TI’s Global Contract Logistics 2017 report. 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 reflects trends in the global economy, where growth rates in advanced economies slowed overall.

It would be too easy to match these struggles to the impacts of political events such as the U.S. presidential election and the Brexit vote. In 2016, Barack Obama was still the U.S. president and the European Union had 28 members. Instead, weak real wage, productivity, and consumption growth dampened global economic growth. Tepid retail sales and manufacturing production growth, in particular, greatly affected the contract logistics market, says the TI report.

On its own, this information suggests contract logistics will continue to struggle. After all, it is a market associated with formalized retail structures, developed for large corporations hoping to achieve operational efficiency. Emerging markets, however, are taking an ever-larger slice of the pie. In fact, in 2016, Asia Pacific became the largest regional market for third-party logistics, overtaking Europe, notes the TI report.

Asia Pacific’s strength is a result of many factors. Sustained robust economic growth coupled with continued retail formalization (thanks to rising disposable income) powers retail contract logistics. Meanwhile, multinational manufacturers increasingly consider production locations outside China, especially nearby ASEAN, thanks to cheaper labor costs.

But even with rising wages, manufacturing in China is still undeniably strong. By moving up the chain to more value-added production, China was able to offset the departure of low-cost manufacturing.

While Europe and North America suffer from stagnating retail sales and manufacturing growth, Asia is driving growth for the global contract logistics market as a whole. This trend is likely to continue.

While economic growth rates in developed nations are forecast to pick up slightly, emerging markets will continue to far surpass them.