APL has slashed its global container shipping capacity in direct response to weaker demand levels. Services on its Asia-Europe trade routes have been cut by 25% and its China Europe Express service has been suspended until further notice. At the same time, air freight in Asia declined by 6% in August as a sharp pullback in capacity triggered the sharpest decline in the Asian air cargo business for nearly seven years. August also marked the third straight month of year-on-year declines in freight traffic for Asian carriers.
However, contract logistics players will find opportunities rising out of the challenging environment. The Asian contract logistics market is still developing, unlike the mature markets of Europe and the US, leaving room for potential growth. Contract logistics has been gaining more and more traction in the past five years and this trend will not only continue, but may in fact accelerate in the tough market conditions.
The pressure on companies to rationalize, and find efficiency and cost improvements in supply chains, will accelerate the outsourcing trend that has been taking shape. This will be an ongoing opportunity for all third-party logistics providers, although competition will be fierce, as potential clients will squeeze suppliers for favorable contracts.
The region will remain a key battleground for international logistics companies which are striving for global market share. Dirk Reich, executive vice president for contract logistics with Kuehne & Nagel, said: "We want to be the market leader for contract logistics in Asia. If we are to be number two globally, then we need to be the biggest in Asia." Mr Reich also noted that traditional logistics companies can diversify from air and sea freight into contract logistics activities: "We want to grow business from our existing base in the forwarding areas."
The Asia Pacific market is ripe for continued M&A activity, as it is highly fragmented and unorganized. Therefore, M&A is one route by which large international players can gain a foothold in the market. However, as logistics companies seek cost-savings, economies of scale will be sought and it is not yet clear whether funding will be available from the financial markets throughout 2009.
China and other countries in the region rely strongly on exports to Europe and the US so imminent recessions in these markets will have a significant impact on Asian economies. Yet intra-Asian trade, based on growing consumer demand, has also contributed to rapid growth throughout the region in the last decade. Therefore, continued economic growth is expected, albeit at slightly decreased levels compared to recent years. Along with continued and accelerated outsourcing, this will contribute to strong growth in the Asia Pacific contract logistics market.
A service of YellowBrix, Inc.
