Logistics companies are set to have a challenging 2008, according to a new report by independent market analyst Datamonitor.
The report, "State of the Industry - Logistics" by Datamonitor's logistics and express division lead analyst Chris Morgan, predicts that as the fallout from the global credit crunch becomes clear, the logistics sector's margins will come under pressure.
"An outright global recession is unlikely but what is fairly certain is that 2008 will be a harder year for customers in the larger economies in the world and as such this will have a knock-on effect for the logistics market," Morgan says.
The report says 2007 was a year of "two halves". In the first half, the major concern was that the global economy would overheat through its rapid expansion driven by consumer spending in the larger economies. The US sub-prime mortgage crisis quickly dampened global optimism.
"The US has been hit particularly hard. While it is not technically in a recession yet, there is no doubt that the economy has slowed considerably since mid-2007.This has had an adverse effect on confidence around the rest of the world, particularly countries that rely on the US for trade."
According to the report, third-party logistics players (3PLs) posted healthy revenue and operating profit increases in 2007 because the effect of the credit crunch in the second half of 2007 had not fully filtered through to consumer spending.
However, the report says operating margins were at low levels, with the average across the companies analysed a mere 3.5%.
Morgan believes the logistics sector can exploit several trends outside the macroeconomic environment that will have a large impact on the industry.
"Technology will play an increasingly important role and RFID (radio frequency identification) will eventually be seen as a standard product offering.
"The environment has rapidly risen up company agenda, requiring 3PLs to examine their green supply chain options.
"There will also be a shift in geographic focus. While China will still enjoy its position as the world's main manufacturing region, other areas of the globe will eat away at its market share. This will further diversify supply chains and increase the demands made by clients on logistics providers."
Morgan predicts 3PLs will collaborate with customers and competitors and consider strategic acquisitions as costs rise due to the continued high oil price and an economic slowdown.
"While the top companies have seen revenue increases in the past years, not all will survive in the medium-term as the market consolidates. Those that survive will be the companies that have a solid grasp of their own capabilities and the market situation, which will help them be proactive rather than reactive in identifying and exploiting market opportunities," he says.