Executive Briefings

Spending Predicted to Increase Considerably on Logistics in Western Europe, But Vary Widely from Country to Country

Spending on logistics services by manufacturers and retailers, both in-house and outsourced, is set to increase by almost â"šÂ¬32 billion ($45.5bn) over the next five years as the size of the outsourced logistics market grows by 26 percent, according to research from business information firm Analytiqa.

However, the research cautions third-party logistics providers (3PLs) managing the outsourced element of the market, who may be expecting a smooth growth path, that country markets will each recover at their own pace. Whilst some markets will recover to pre-recession levels in 2011, others will take until 2013.

Whilst Analytiqa forecasts significant growth in logistics spend in Western Europe over the next five years, a significant share of this is attributable to the "recovery" of momentum lost during the recent global economic downturn.

At a macro level, growth in logistics markets will be driven by the performance of individual country economies, levels of government spending and consumer confidence within those economies. The changing dynamics of globalisation will also feature prominently, as economies elsewhere across the globe grow at faster rates than Western Europe and the location of low-cost manufacturing locations is challenged.

Analytiqa's research identified that, whilst retail logistics will continue to dominate as the largest sector of the Western European logistics market, it is not forecast to grow most quickly. The sector will be increasingly impacted by changing consumer habits and multichannel retailing, as "click and collect" and online shopping / home delivery change the traditional logistic models.

The FMCG logistics market will continue to be closely aligned to growth in the retail sector. FMCG logistics markets are set to grow by around 15 percent in the period to 2015 as manufacturers across the sector continue to merge and / or consolidate as they seek the advantages of scale at a global level.

Growth in pharmaceutical logistics markets will continue to be driven by the increasing demands of aging populations across Western Europe, together with legislative requirements, and the pressures that manufacturers face to bring products to market more quickly. The outsourced contract logistics element of this market is set to grow by almost 24 percent up to 2015.

The automotive and hi-tech logistics sectors suffered most from the economic downturn and, as a consequence, will likely see the largest growth rates over the next five years as the markets recover. However, as these sectors rely to a greater extent on consumer confidence, growth may be somewhat unpredictable, or uneven, especially at a pan-European level, as recovery in markets such as Spain will not align with growth in Germany, for example.

At a country level, logistics markets in the UK, Italy and Germany are set to grow fastest in the years to 2015, partly as a consequence of those markets also seeing the largest decreases in revenues over the 2007-2010 period.

In outsourced logistics, the market in Spain will grow by the least amount over the 2010-2015 period, registering growth of over 15 percent. In France, Belgium and the Netherlands, contract logistics markets will grow at a significantly higher rate.

During the economic downturn, many manufacturers and retailers evaluated their logistics models as they sought moves away from fixed-cost operations to more flexible alternatives based on variable costs, aiming to achieve cost savings and greater efficiencies. As a result, the level of outsourcing was boosted.

At the same time, however, prices and contract negotiations in outsourced markets were made increasingly challenging for 3PLs, not least as a result of the overcapacity of warehouse space seen across many markets.

Whilst this boost to outsourcing rates fell back somewhat as shorter-term contracts came to an end, levels are expected to continue growing, and at faster rates in the less mature logistics markets. Across the more developed markets, growth in outsourcing rates will be harder to achieve in the near term, and particularly in the retail and FMCG sectors, as the rationale for outsourcing becomes less compelling, as markets and economies recover.

"Whilst logistics markets are set for growth, for 3PLs, managing the outsourced elements of the market, this lies largely outside of their control as wider macro-economic factors combine to determine which industry sectors and geographic markets will grow more quickly," said Mark O'Bornick, research director at Analytiqa.

"[Our] research identifies that growth opportunities are there for 3PLs to seize, given careful targeting of both customer and country markets. However, 3PLs face challenging times. Whilst they are able to exert greater influence over growth in the outsourced elements of the logistics market, increasingly sophisticated customers, tighter stricter security and environmental standards and the changing dynamics of globalisation require that they constantly evaluate their service propositions, the value they add to supply chains and their role in helping their customers meet their strategic and commercial objectives."

Source: Analytiqa

Spending on logistics services by manufacturers and retailers, both in-house and outsourced, is set to increase by almost â"šÂ¬32 billion ($45.5bn) over the next five years as the size of the outsourced logistics market grows by 26 percent, according to research from business information firm Analytiqa.

However, the research cautions third-party logistics providers (3PLs) managing the outsourced element of the market, who may be expecting a smooth growth path, that country markets will each recover at their own pace. Whilst some markets will recover to pre-recession levels in 2011, others will take until 2013.

Whilst Analytiqa forecasts significant growth in logistics spend in Western Europe over the next five years, a significant share of this is attributable to the "recovery" of momentum lost during the recent global economic downturn.

At a macro level, growth in logistics markets will be driven by the performance of individual country economies, levels of government spending and consumer confidence within those economies. The changing dynamics of globalisation will also feature prominently, as economies elsewhere across the globe grow at faster rates than Western Europe and the location of low-cost manufacturing locations is challenged.

Analytiqa's research identified that, whilst retail logistics will continue to dominate as the largest sector of the Western European logistics market, it is not forecast to grow most quickly. The sector will be increasingly impacted by changing consumer habits and multichannel retailing, as "click and collect" and online shopping / home delivery change the traditional logistic models.

The FMCG logistics market will continue to be closely aligned to growth in the retail sector. FMCG logistics markets are set to grow by around 15 percent in the period to 2015 as manufacturers across the sector continue to merge and / or consolidate as they seek the advantages of scale at a global level.

Growth in pharmaceutical logistics markets will continue to be driven by the increasing demands of aging populations across Western Europe, together with legislative requirements, and the pressures that manufacturers face to bring products to market more quickly. The outsourced contract logistics element of this market is set to grow by almost 24 percent up to 2015.

The automotive and hi-tech logistics sectors suffered most from the economic downturn and, as a consequence, will likely see the largest growth rates over the next five years as the markets recover. However, as these sectors rely to a greater extent on consumer confidence, growth may be somewhat unpredictable, or uneven, especially at a pan-European level, as recovery in markets such as Spain will not align with growth in Germany, for example.

At a country level, logistics markets in the UK, Italy and Germany are set to grow fastest in the years to 2015, partly as a consequence of those markets also seeing the largest decreases in revenues over the 2007-2010 period.

In outsourced logistics, the market in Spain will grow by the least amount over the 2010-2015 period, registering growth of over 15 percent. In France, Belgium and the Netherlands, contract logistics markets will grow at a significantly higher rate.

During the economic downturn, many manufacturers and retailers evaluated their logistics models as they sought moves away from fixed-cost operations to more flexible alternatives based on variable costs, aiming to achieve cost savings and greater efficiencies. As a result, the level of outsourcing was boosted.

At the same time, however, prices and contract negotiations in outsourced markets were made increasingly challenging for 3PLs, not least as a result of the overcapacity of warehouse space seen across many markets.

Whilst this boost to outsourcing rates fell back somewhat as shorter-term contracts came to an end, levels are expected to continue growing, and at faster rates in the less mature logistics markets. Across the more developed markets, growth in outsourcing rates will be harder to achieve in the near term, and particularly in the retail and FMCG sectors, as the rationale for outsourcing becomes less compelling, as markets and economies recover.

"Whilst logistics markets are set for growth, for 3PLs, managing the outsourced elements of the market, this lies largely outside of their control as wider macro-economic factors combine to determine which industry sectors and geographic markets will grow more quickly," said Mark O'Bornick, research director at Analytiqa.

"[Our] research identifies that growth opportunities are there for 3PLs to seize, given careful targeting of both customer and country markets. However, 3PLs face challenging times. Whilst they are able to exert greater influence over growth in the outsourced elements of the logistics market, increasingly sophisticated customers, tighter stricter security and environmental standards and the changing dynamics of globalisation require that they constantly evaluate their service propositions, the value they add to supply chains and their role in helping their customers meet their strategic and commercial objectives."

Source: Analytiqa