What is the future for the Asia Pacific logistics market?

In their forecasts for the coming year, all three of these Japanese companies suggested continuing strong markets in shipping and other services except into the US. All expect European demand to continue to grow sufficiently to absorb excess capacity from transpacific trades, although MOL hit a note of caution about the continuing strength of demand from China after the Olympics.

In the air freight sector, the IATA figures for the first five months of the year revealed a 1.2% growth in Asian carrier traffic set against a 1% increase in capacity. As demand slightly outstripped supply, that would suggest an increase in air cargo rates, in addition to the high levels of fuel surcharges presently being applied by all airlines. However, in May there was a drop in output resulting from the impact of the earthquake in China and weakness in the Japanese economy.

Latest figures from Hong Kong-based carrier Cathay Pacific show that demand has remained fairly robust in most markets, with the exception of northeast Asia. As with the IATA figures, its cargo tonnage growth has stayed ahead of capacity growth. However, the continued rise in jet fuel costs is having a serious impact on its bottom line.

Korean Air, one of the world's largest cargo airlines, said in its most recent financial release that the overall Korean air cargo market was growing at around 12%. The weakening Korean Won had triggered outbound cargo and traffic from US/Europe to China and South East Asia had shown strong growth. The airline believes that following the free trade agreement between Korea and US, air cargo will show a 10% annual growth.

Finally, in its latest quarter, Singapore-based SIA Cargo's freight traffic was 0.4% higher compared to last year. However, as capacity grew by a higher 1.6% during the quarter, the cargo load factor declined by 0.8 percentage points.

In Deutsche Post World Net's 2008 first half interim results, its DHL Express division reported organic growth revenue growth — excluding currency effects and other non-operative items — of 13% in the Asia Pacific region. However, management commented that “economic momentum slowed somewhat in China”. Also in the express sector, TNT reported that significant operational growth had been fuelled by “high double-digit” increases in China and India, presumably meaning growth in the region of 17% to 19%.

Growth in the region for UPS and FedEx is more difficult to quantify although it is known that the domestic Chinese express market is facing problems due to its hyper-competitive nature and rising fuel prices. UPS has reported more than 15% growth for the quarter in the region helped by good performances across all its business units. It had been particularly strong in China (growth of 30%) and India (almost 25%). The region delivered growth of nearly 20% for the 2007 full year. The numbers for FedEx are less certain although it is investing heavily in China, both in terms of infrastructure and, it is believed, in price cuts to make its services more competitive. It is planning a new Asia Pacific hub, which will open in 2009 in Guangzhou, and opened a domestic hub in Hangzhou at the end of 2007.

The range of macro-economic indicators and company performances just highlighted, show that the Asia Pacific market is still in good shape, although under pressure. Inflation is the big worry for many economies and that could have a detrimental effect on growth prospects if food, fuel and other commodity prices continue to rise. Fuel increases will no doubt have an impact on rebalancing the supply/demand equation in many logistics markets as a result of company failures. That will eventually lead to upward pressure on rates even in highly fragmented sectors such as road freight and domestic parcels. Fuel prices will also play a role in the shipping and air cargo sector — not at this stage curtailing revenues, but reducing profits.

It would be too simplistic to conclude that the Asia Pacific logistics market's fortunes depend wholly on the price of oil. However, in some ways it is more vulnerable than its counterparts in Europe or North America. As a large proportion of production in the region is export-oriented, if oil prices remain at very high levels for a significant period of time, western manufacturing companies may decide it is in their interests to restructure their global supply chains. In part, that would be due to the increased cost of transporting goods from Asia Pacific to western markets, and in part due to the increased labor costs which are becoming apparent throughout the region.

In conclusion, as this brief analysis of the performance of key economies and logistics companies shows, it is far too early to discount continued strong growth in the market. The developing markets of Asia Pacific may well lead the world out of a global slowdown, positioning the region even more strongly for the future.

These are just a few of the issues which will be addressed at the Global Distribution Strategies 2008 — Asia Pacific Conference at the Langham Place Hotel, Hong Kong, December 2-4, 2008. Contact www.ticonferences.com/