Transport and logistics sector enters new phase of recovery

29.04.2022

The global transport and logistics sector recovery is entering a new phase, and we're expecting substantial growth in 2022 – despite the war in Ukraine and continued supply chain disruption

Second phase recovery from the pandemic for transport and logistics

The global transport and logistics sector will see another year of substantial growth in 2022, despite setbacks from the Ukraine war and ongoing lockdowns in Chinese port cities. The recovery is entering its second phase, but it is showing two faces. While dominant goods logistics is expected to enter a phase of moderation after a strong rebound driven by the shift to goods consumption, passenger transportation is expected to take over with a significantly stronger recovery from last year’s pandemic lows.

Recovery in global transport and logistics continues on the back of the return of travel

Airlines and public transport are drivers of sector growth

After a second year of losses, airlines expect to see a natural rebound of leisure travel in 2022 from unprecedented pandemic lows, with travellers eager to resume their journeys after two years of limited leisure travelling. Many consumers saved money for holidays which has made higher ticket fares less offputting. In a consumer survey in the US last year, 22% of respondents said they held back spending in order to be able to travel once it was more accessible.

In everyday passenger transport on road and rail (public transport), we also see a significant rebound over the first quarter of the year. Figures for travelling to transit stations reveal a rebound to levels between 70% to 95% in European countries, and some 75% in the US compared to the pre-pandemic baseline. Recovery is expected to continue this year, which drives general growth in transport in 2022.

Ukraine war limits the upside for sector growth, especially in Europe

The war in Ukraine has major implications for aviation and shipping. We expect world trade to flatten this year if the war carries on. Although recovery continues in transport and logistics, the conflict clearly slows volume growth, especially in Europe, with formal and voluntary sanctions on trade and a weakening general economic perspective due to rising prices and increased uncertainty around global growth perspectives. This is on top of the inefficiencies of disrupted supply chains and ongoing elevated transport prices (+link) pushing up costs of trade. Estimated average westbound container costs from Asia to Europe surged from 2-3% to 10-15% of product value by the end of the first quarter compared to two years ago. As the manufacturing sector still holds up quite well with order books fairly filled, the impact of slowing demand for goods may materialise more in 2023, but this also depends on how the Ukraine war evolves.

Global transport and logistics sector to exceed pre-pandemic level in 2022

Value added transport, logistics & storage sector (index, 2019 = 100)

How will supply chain frictions evolve further into 2022?

Port congestion and backlogs started to ease in the first months of the year, leading to a substantial improvement in the US LA-Longbeach port bottleneck. However, the war in Eastern Europe and related avoidance of ports and vessels combined with a new lockdown at the world’s largest global container port region, Shanghai, put the global supply chain network to the test again. Estimated Far East-Westbound timeliness (cargo ready ex-works to port of destination departure) reached a new high in April which adds to existing delays in supply chains. It’s uncertain how these events will evolve, but the impact will at least be felt for several months ahead. Consequently, imbalances are expected to drag on through the year.

Cross sectoral and global cost pressure for transport companies – pricing power helps

For many companies, this year is marked by rising costs of fuel, wages, and transport equipment. The aviation and shipping sectors are the most energy-intensive. In aviation, specifically, this complicates the return to profitability, while the highly-fragmented trucking sector is also affected. For the latter, the positive thing is that shortages of drivers and transport equipment have lifted pricing power in the US, UK and EU, but wages and sub-contractor rates have gone up as well. With the market volumes and pressure on capacity easing further into 2022, it will most likely be less profitable for most road haulage companies.

Logistics services providers entered a more challenging year

The profitability of large global logistics services providers active in sea and airfreight soared amid increasing volumes and spiking tariffs in 2021 (chart). The year ahead, however, will be more challenging because of the market, but also because of competition. Last year, logistics companies benefited strongly from earlier fixed-term contracts with container liners, that offered a high margin on the spot market. But as container liners shift more into term contracts with clients, they will try to deal with large shippers themselves more often. Consequently, margins are likely to have peaked and will erode in 2022.

A positive note for logistics services providers active in parcel is that at least higher e-commerce volumes over the pandemic are here to stay. UNCTAD figures show that the online share of total sales of goods is close to 25% in the UK, China, and Korea in 2020. Other parts of the world are lagging, indicating that there’s generally ample room for bolstering growth.

Logistics services providers boosted margins amid rebound and disruption

Operational margins of large global logistics sercvices providers (EBIT) in % per year