Possible Storm Clouds Ahead for Logistics Industry?

This is strait from the GIL website...and it is kind of sobering...to be honest, I am not buying into this type of analysis just yet. What do you think?

Companies specialising in providing logistics services have done well in recent years, but the future prospects for the industry are not so certain according to independent market analyst Datamonitor's (DTM.L) latest research "Logistics Benchmarking and Profiler 2006."

The report reveals revenues for third-party logistics providers (3PLs) have continued to rise, driven by an improved economic climate and companies outsourcing non-core activities to try and reduce costs.

However, the report concludes that knock-on effects of economic factors, oil and the collapse of the Doha round of trade discussions may cause significant problems for this sector in the near future. Moreover, while the unique Global Scorecard included in the report rates each logistics company and shows there are clear leaders, it also reveals that a number will have to alter their strategies in the future in order to survive.

Following the significant effect on economic growth and international trade from set-back of September 11th and the SARS virus in 2003, the major economies have recovered well. This has had a significant effect on global trade as demand has increased in the majority of the affluent countries. However TDG and TNT Logistics recorded year-on-year declines due to operational difficulties – worryingly this was the third successive year-on-year fall for both.

Furthermore, even the companies who have seen large increases in revenue have not necessarily translated this into an improvement in their bottom lines, as average operating margin slipped from 3.4% in 2004 to 2.7%.According to Chris Morgan, Datamonitor logistics analyst and author of the report, there are two main drivers for this.

The first has been the dramatic increase in oil prices, which has raised transportation costs. "Although a proportion of this rise has been passed on to customers, some of this has inevitably eaten away at profitability," says Morgan.

The second problem is the low pricing power of the 3PLs. "Even after the latest wave of M&A, the logistics market is still highly fragmented. Datamonitor's research shows that only four European players have a global market share in contract logistics of over 1%."