SPECIAL REPORT: GLOBAL CONTRACT LOGISTICS GLOBAL CONTRACT LOGISTICS MARKET ���� FORECAST GROWTH TO SLOW TO 3.1%

Asia Pacific region is expected to drive market expansion, while Europe and North America are set for more pronounced slowdowns and growth below the global average, Ti analysis indicates

In 2023, Ti’s interim projections indicate that the contract logistics market is expected to grow at a slighter slower pace than in 2022 as the economy enters a pronounced slowdown and market moderation seen in the second half of 2022 spills over into 2023. The market is projected to grow by 3.1% y-o-y (down from 3.4% in 2022) and is expected to reach a value of €253.6 billion.

Slowdowns will be more pronounced in Europe and North America, which are expected to see much weaker growth below the global average.

North America is expected to grow by 2% y-o-y, whilst Europe is expected to grow by just 0.6% in 2023. The market will be driven by the Asia Pacific region (5.7% y-o-y), which is expected see strong GDP, manufacturing, and retail industry growth in the coming year. As described by the IMF in its October 2022 update, Asia remains a [relatively] bright spot in an increasingly lethargic global economy.

When commenting on the outlook for 2023, several major global contract logistics providers have outlined that although macroeconomic factors will slow growth, they are unlikely to negatively affect the market to the same extent that might be seen in the container industry, for example, which is more vulnerable to boom-and-bust cycles. In its latest earnings call, Robert Sanchez, CEO of Ryder, commented that,

On the supply chain side, these are contractual businesses where we have long-term contracts with our customers. So, even when there’s some volatility in the market, really the margins hold up very well... if you look historically.

Similarly, Malcolm Wilson, CEO of GXO, highlighted that although top lines are likely to slow alongside the economy, the company expects that bottom lines will remain resilient due to the long-term nature of contractual wins. GXO also highlighted that one of the most prominent challenges it is likely to face into next year is foreign currency headwinds. As such, the company expects to see a more moderate level of growth throughout 2023.

The continued backlog in automotive production is expected to drive volumes in the coming year. Following the post-lockdown normalisation of the B2C sector, e-commerce volumes are also expected to grow from a higher base level in comparison to pre-COVID.

Overview of regional performance

Asia Pacific is therefore expected to be the fastest-growing market in 2023 and is forecast to remain the largest regional contract logistics market. Aside from Russia, Caucasus, and Central Asia, the Europe region is expected to witness the slowest growth in the coming year. This is due to a forecast decline in economic growth; Europe’s real GDP growth is expected to decline from 1.9% to 0.3% in 2023 according to the IMF.

Asia Pacific, the Middle East & North Africa, and Sub-Saharan Africa are expected to outpace global growth (3.1%).

Global economic growth

Total Contract Logistics Market Growth Forecast by Region 2022 v 2023

Ti’s interim projections indicate that North America, Asia Pacific, and Sub-Saharan Africa are the only three regions expected to grow at a quicker pace in 2023 than in 2022. Strong growth in retail and manufacturing is expected to offset lower GDP growth in North America through 2023. Asia Pacific meanwhile expects to see slightly stronger GDP growth in 2023, as well as strong retail and manufacturing growth. All other regions, including Europe, are expected to grow at a slower pace year-on-year.

Five out of seven regions should expect to see positive single-digit growth in 2023 in their respective contract logistics markets: Asia Pacific (5.7%), Middle East & North Africa (5.4%), Sub-Saharan Africa (3.9%), North America (2.0%), South America (1.8%). Europe is forecasted to grow by less than 1 percent (0.6%). Russia, Caucasus, and Central Asia region is forecast to see negative growth in 2023 (-1.5%).

Global economic activity is experiencing a broad-based and sharperthan-expected slowdown, with inflation higher than seen in several decades. This pronounced slowdown is influenced by several factors: tightening global financial conditions in most regions, associated with expectations of steeper interest rate hikes by major central banks to fight inflation, a sharper slowdown in China due to extended lockdowns and the worsening property market crisis, and spill over effects from the war in Ukraine with gas supplies from Russia to Europe tightening.

As such, the IMF forecasts that global growth is going to slow from 6% in 2021 to 3.2% in 2022. The IMF reported that the slowdown began in the second quarter of 2022, with global real GDP contracting ‘modestly’. Growth is expected to moderate further in 2023 (2.7%). This prognosis for the global economy is far below average: global economic growth averaged 3.6% during 2000–21 (and the same during 1970– 2021). For most economies, the outlook is significantly weaker than projected six months ago in the April 2022 WEO. Forecasts are weaker than expected for 143 economies (accounting for 92% of world GDP) for 2023. The forecast for 2023 is the weakest since the 2.5% growth rate seen during the global slowdown of 2001—with the exception of those during the global financial and COVID-19 crises.

Global inflation is forecast to rise from 4.7% in 2021 to 8.8% in 2022. However, as of its October 2022 release, the IMF predicts that inflation will decline to 6.5% in 2023 and to 4.1% by 2024 as major economies introduce monetary and fiscal policy to fight against inflation.