Monday 17th Dec 2018 - Logistics & Supply Chain

Datamonitor pessimistic on recovery

There will need to be major improvements in consumer confidence, industrial output and subsequent international trade volumes for global freight and parcel volumes and revenues to rebound significantly, according to new research by market analyst Datamonitor.

The analyst pointed out that German exports, which have traditionally driven the country’s economic growth, surged by seven per cent in June compared to the previous month, representing the fastest such growth in almost three years. Imports were also up by seven per cent month on month. As a result, the German economy has now exited the recession, recording 0.3 per cent overall growth between April and June. With France matching this performance, Europe’s two largest economies have rebounded from a 12-month period of recession.

“Such positive signs have not been exclusive to Europe,” it said. “After four quarters of negative growth, Japan exited recession in Q2 after its economy grew 0.9 per cent. Hong Kong also recorded growth, of 3.3 per cent, in the same period. In the US, the IMS manufacturing survey rose in May and specifically the new orders index rose above the threshold for growth for the first time since December 2007. This indicates a swing in industrial production levels from steep contraction to flat or even modest expansion.”

Both Japan and China have been boosted by rising domestic consumption and government stimulus plans. In China, the government’s stimulus plan helped spur growth in Q2 of 7.9 per cent (an increase of 1.8 per cent from the first quarter) and a rise in retail sales in June of 15 per cent. Japan suffered with particularly negative results in Q1 when exports were badly impacted by the economic downturn. Government stimulus measures totalling $260billion, including cash handouts to stimulate spending, are thought to have kick-started the economy. Japanese manufacturers also benefited from recovering demand in China and other markets, with overall exports up 6.3 per cent during the quarter.

However, such stimulus spending-driven growth cannot last forever and it is difficult to find evidence of any impact on the logistics and express industries, as Asia’s export dependent markets are still suffering from the slump in spending in Europe and North America. Once the stimulus budgets are spent, new sources of growth will be needed and as logistics and express companies’ volumes are coming from such low levels, a real recovery still seems a long way away, said Datamonitor logistics & express senior analyst Erik Van Baaren.

“We have seen the year-on-year decline in air freight volumes at Hong Kong International Airport, the world’s busiest air cargo hub, ease in July with volumes down just 8.4 per cent, representing the smallest monthly decline since September last year. Year-to-date volumes are still down 19.6 per cent, however, signalling that there is a long road to recovery still,” he says.

In the meantime, Orient Overseas Container Line announced a 17.2 per cent drop in container lifting in the first half of 2009 compared to the same period in 2008, and Japan Airlines reported a 56 per cent decline in cargo revenue in its first quarter. Away from Asia, the latest figures from the European Liner Affairs Association indicate ongoing decline in transatlantic container volumes and revenues. “Ultimately, it seems small glimmers of hope in economic performance are making little impact on the volumes and revenues of the logistics and express industry so far,” Van Baaren says.

Dagamonitor also highlights some negative reports to dampen any optimism creeping into the minds of the industry executives. The Baltic Dry Index recently plunged 17.2 per cent, representing the worst week for the index since the deep crash of October 2008, as Chinese demand for steel and coal slowed and stalled price negotiations took effect. In addition, the International Energy Agency issued warnings that oil prices above the current levels of $70 per barrel could dampen nascent economic recovery.

There are also signs that some economies are arriving later to this recession. Russia’s economy, for example, shrank by a sharper than expected 10.9 per cent in the second quarter of this year having been hit by a slump in world demand and weaker prices for its oil and commodity exports.

While economic growth is a key indicator of growth in logistics and express markets, the steep decline in volumes over the past twelve months means that the industry is coming from a very low base and so will need significant and sustained periods of improving macroeconomic factors to have a noticeable impact on logistics and express volumes, Van Baaren says. “A significant upturn in parcel and freight volumes, combined with the improved performance of logistics and express companies will therefore not be realised until late this year, or even early 2010.”

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