| Tough conditions dominate |
2003 was a difficult year for many of the world’s leading logistics players, particularly those with high exposure to the struggling mainland European economies. Most logistics companies focused on improving internal efficiencies in order to maintain profit margins, or in some of the worst cases, to cut losses.
France was the most challenging of the markets. ABX Logistics received permission from the European Commission (EC) to bail out its French subsidiary, Dubois. Grimaud was not so lucky and its owner Ziegler shut it down amidst controversy.
Market leader Geodis as well as a number of other European players all complained of the difficult market conditions which had resulted in falling volumes and profits. Norbert Dentressangle was one of the few exceptions to this trend.
Conditions in the UK were also difficult, although strong retail sales buoyed the consumer goods market. Many logistics companies, especially commoditized motor carriers, found it difficult to pass on rising costs, including fuel, insurance and employee overheads.
Many of the larger contract logistics players had more protection from open book contracts, mitigating the full effects of the manufacturing recession.
Germany, the largest market in Europe, experienced many of the same problems. Thiel Logistik was one of the worst affected by the downturn and scaled back on its expansion plans. D. Logistics, recovering from a disastrous acquisition program, managed to stem losses and hopes to return to profitability in 2004.
Overall, competition continues to be fierce, with the market typified by oversupply and falling demand. However, the economy continued to pick up towards the end of the year, fuelling hopes for a better 2004.
Alliances replaced mergers and acquisitions as a popular means to expand. Mainly due to the harsh economic climate, the number of companies ambitious enough to grow through acquisition fell considerably.
In contrast with M&A activity, alliances — out of favor with logistics companies for several years — grew in popularity. TDG withdrew from its French operation, preferring instead to build a relationship with a medium-sized local player. Likewise it established a partnership with TTS Global Logistics to extend its presence in the German market. Exel also chose this option, creating an alliance with Militzer & Muench to give it capabilities in Germany and throughout central and eastern Europe. This approach seemed vindicated by Hays’ and Christian Salvesen’s decision to sell their fully owned German subsidiaries.
European Union expansion will not be good news for everyone in the industry. Some estimates suggest that up to 20,000 in the eastern European forwarding community will lose their jobs, and 2,000 within the EU as the need for forwarding agents is removed.
Investment in China continues to expand, helped by a relaxation in the rules governing corporate activity in the market. Foreign companies are now able to own up to 75% of joint ventures and the accession to the World Trade Organization also means that China must open up its domestic market by 2005. In order to take advantage of this huge opportunity Deutsche Post, Schenker, Gefco, Exel, FedEx and UPS have all been among the most proactive in reinforcing their presence in the country.
There’s light at the end of the tunnel. Improving results and positive indicators suggest that 2004 could see a strong recovery in the market. Stock prices have risen strongly, and even the high-tech sector — one of the worst hit — seems to have bounced back. The latest wave of financial results from the logistics industry seem to bear this out, although growth in revenues and profitability is by no means ubiquitous. LT
John Manners-Bell is lead analyst with Transport Intelligence (www.transportintelligence.com), based in Cambridge, UK.
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