The logistics world in 2008!

The fate of the worldwide transport and logistics industry in 2008 will be inextricably linked to the state of the global economy. This makes any sort of prediction very difficult as economists themselves are divided on the outlook. However, most are agreed that industry faces a slowdown; it is the extent to which this will occur that is still uncertain.

The roots of the slowdown lie in the so-called 'credit crunch' in global financial markets, which was triggered by defaults in the 'sub-prime' mortgage sector in the US. The effects of this have yet to unravel – hence widespread uncertainty. In many respects, fear of the unknown is likely to result in a self-fulfilling prophesy. Consumers will reduce their expenditure and manufacturers will put off investment decisions, creating a recession built on lack of confidence. Shipping volumes are bound to be impacted.

In addition to the 'credit crunch', spiralling fuel costs have fanned inflation, leading to rising interest rates worldwide. Many logistics providers have felt the full force of these rises, being unable to pass them on in their entirety and suffering a consequent impact on margins.
If a slowdown is inevitable as economists think, the question remains as to its extent. A recession in the US, the world's largest economy, will of course impact on transpacific volumes. This has already been experienced in the container shipping sector. Maersk Line is reducing its workforce by 2-3,000 jobs (although this is partly the result of internal problems); the president of Japanese global operator Mitsui OSK Lines (MOL), Akimitsu Asida, has said that 2008 "losses on the North America route will be significant"; and NYK has outlined a plan to reduce ship speeds by 10% in order to cut fuel costs. Meanwhile, recent and continuing investment in new capacity by shipping lines has made any slowdown in volume growth all the more critical.

A recession is also likely to badly hit air cargo markets. Traditionally cyclical high-value goods, such as electronics, are amongst the first to see cutbacks in demand. Shippers may decide to migrate some lower value volumes to sea, or within the US from air to road, as traditionally occurs in a weak market.

If a slowdown occurs, 2008 will be characterised by increasing freight capacity and volumes failing to keep pace – certainly in the shipping sector. Freight forwarders will be the major beneficiaries as this scenario would enable them to take a bigger slice of buy-sell revenue. With capacity in some air freight markets also running high, a steep drop in rates in this sector could also be on the cards – which would be further bad news for carriers which have been battling a steady decline in overall yields for some years.

However, there is a chance – even a good chance – that all this talk of global recession is overblown. The Asia Pacific region may well continue its strong growth, with China very much less reliant on the US market than it once was. China's own domestic economy will continue to suck in goods from its neighbours – especially Japan – and those countries will in turn grow in significance as export markets. Likewise, Europe has yet to show any real signs that it has caught the US economic cold, despite slightly wobbly retail figures over Christmas.

It has been said that more efficient supply chains, coupled with more flexible job markets, have made the chances of worldwide recession far less likely than in the past. Economies are now much better able to compensate for the type of financial and commodity pressures that have been seen in the past year. This will hopefully mean that any slowdown experienced in the global economy is far less serious than many analysts currently fear.