SPECIAL REPORT: GLOBAL CONTRACT LOGISTICS

With moderate growth in Asia-Pacific, the Middle East, and Africa, the world economy is expected to avoid a downturn, but growth will likely be minimal.

Manufacturing output weakening

According to research by Interact Analysis, the total output of the manufacturing industry is expected to grow by 3.9% in 2022, before declining by $0.2tn in 2023 because of the unprecedently wide range of pressures on the economy, including inflation and the war in Ukraine. Europe will be particularly slow, with a growth projection for manufacturing of 3.7%.

Contract Logistics Market Growth by Region 2023 (f)

A contraction in real GDP lasting for at least two consecutive quarters (which some economists refer to as a “technical recession”) is expected to be seen at some point during 2022-23 in about 43% of economies with quarterly data forecasts (31 out of 72 economies), amounting to more than one-third of world GDP.

According to S&P Global Market Intelligence, economies in Asia Pacific will dominate global growth in the upcoming year, whilst North America and Europe are likely to fall into a recession. S&P predicts the region will achieve a real growth of roughly 3.5% in 2023, whilst the IMF expects the region’s real GDP to grow by 4.2% in 2023, up from 4.0% in 2022.

Both Europe and North America meanwhile are expected to witness the impact of softening demand and tightening financial conditions, with exceptionally high inflation draining purchasing power and leading to declines in consumer spending. As such, real GDP growth in Europe is expected to drop to 0.3% in 2023, from 1.9% in 2022, according to the IMF. Real GDP growth in North America is expected to decrease to 1.0% in 2023, from 1.8% in 2022.

The manufacturing machinery forecast is far less optimistic than the previous quarter, with eight of the top 10 sectors experiencing a downward revision of their forecast for 2022. Semiconductor and electronics machinery bucked the trend, and it is forecast for 6.2% growth in the year. However, such growth is likely to be unsustainable in the context of the boom-bust market for semiconductors, and so a major downturn is projected for 2023.

Shanghai lockdowns are expected to have an impact on the manufacturing industry, particularly because the city hosts a port that handles over 25% of all Chinese freight traffic. Although Shanghai is primarily a finance centre, if the Chinese government were to implement similar measures in one of its major manufacturing hubs, it may hasten the global economies downward trend, since China accounts for 44.4% of total global production output.

The automotive industry is also expected to continue to suffer in the coming year. The industries outlook has been worsened by the Ukraine war for several reasons; Russia provides the majority of the world’s palladium which is used to produce catalytic converters and is now inaccessible. Furthermore, Ukraine is a key manufacturer of components for western Europe’s automotive industry, particularly wire harnesses, supplies of which are now intermittent.

World events are playing an outsized role in terms of their impact on manufacturing. Inflation has caused severe problems by increasing input costs for energy, raw materials, and components. In the US, a strong dollar is damaging the competitiveness of manufacturing exporters. Meanwhile, China is far less badly impacted by inflation, with a rate of just under 3% (compared to 9% in the US). The topic of reshoring or near-shoring of manufacturing is much discussed in the global business press. One clear present-day move in this direction is the US’s CHIPS Act, which is investing $52 billion in US semiconductor manufacturing. The Chinese response is not yet clear, but the CHIPS Act is likely to prove effective in its primary goal of reducing US dependence on China since of the top 10 semiconductor companies, six are US and none are Chinese. The likely result is a significant shift of semiconductor manufacturing to the US in the mid to long-term.

Tim Dawson, Senior Research Director at Interact Analysis

Retail momentum fading

According to Deloitte, double-digit sales growth is expected for apparel, catered food, and department stores over 2022 (compared with locked down 2021), driving a healthy real retail sales performance of 5.5% growth over 2022.

However, the cost-of-living squeeze, higher interest rates and preference for spending on services is expected to lead to a slowdown in retail momentum through the second half of 2022, which may then result in real per capita spending on retail falling over 2023 and 2024 as consumers face economic uncertainty.

According to ING, a strong dollar has led to more expensive cross-border shopping in China. The European picture shows similarities, as European consumer confidence has tested new lows amid the energy crisis. While consumer spending in the US held up relatively well in 2022, ING expects it to fall in 2023 due to rising interest rates resulting in ever-tighter credit conditions and rising unemployment, further weighing on demand.

Global air cargo volume – known as an early indicator for consumer products demand – has also slumped since early 2022, showing a 5% decline after an initial strong recovery in 2020 and 2021.

According to Deloitte, due to pressures on prices the majority of retail turnover growth for H2 2022 and into 2023 and 2024 will be driven by prices rather than sales volumes. Retail sales volume growth may average only 1.1% over 2023 to 2025, compared to 1.9% per annum for retail price growth.

REGIONAL ANALYSIS Europe

Given the prevailing economic mood and less than encouraging projections from leading financial organizations, Ti’s interim projections anticipate that 2023 will be a story of significantly reduced growth for most European countries. The European market is forecast to reach €74 billion in 2023, with a projected slowing growth rate of 0.6%, as economic conditions continue to tighten.

Some major economies in Europe will see contract logistics market growth slow to less than 1% in 2023, and others will experience slowing growth from previously quite high rates. Whilst there are conflicting forecasts about retail growth in 2023, manufacturing in the UK is expected to decline in 2023. For Europe, the region’s real GDP growth is expected to decline markedly from 1.9% to 0.3% in 2023 according to the IMF.

North America

According to Ti’s interim projections, contract logistics growth rates will grow moderately in 2023 for the Canadian and US markets, mainly due to a stronger retail and manufacturing forecast for 2023. The North American contract logistics market is expected to grow by 2% y-o-y in 2023, to a value of €59 billion.

Asia Pacific

Ti’s 2023 interim projections indicate that, in broad terms, growth rates in Asia Pacific countries are stronger than in Europe. Average growth in Asia Pacific in 2023 is expected to be 5.7%, compared to 0.6% in Europe. Countries in the Asia Pacific region will continue to see positive contract logistics market growth in 2023 and for some countries, there will be market size growth of over 10%.