E-commerce is driving the growth of contract logistics, but there are risks

The global contract logistics market recorded positive trends last year and, according to Transport Intelligence (Ti), the growth trend is expected to continue, but challenging external conditions may pose a threat to growth.

A recent report by Ti shows that the global contract logistics market grew by 3.5% in real terms in 2023, compared to 3% growth in 2022, which Ti said marked a return to “a more normalized, pre-pandemic state of growth demand.”

Growth in real terms shows underlying demand and activity, net of inflation. In 2023, the market recorded a value of EUR 284 billion ($308.9 billion), almost 12% more than before the pandemic.

The intelligence platform predicted that the contract logistics market will grow by 4.2% y/y in 2024, reaching a value of EUR 296 billion. And bTi forecasts it will reach €348 billion in 2028 and cites e-commerce as a “long-term growth opportunity.”

Indeed, according to DHL, structural trends in e-commerce are offsetting weaker consumer spending.

– said Adrian Stoch, GXO Automation Director Loadstar the development of e-commerce has changed customer requirements in terms of storage and logistics.

“ANDfor example, in the clothing retail space, companies will need to be very strategic in designing their warehouse networks; you need to be as close to your end consumer as possible… Same-day fulfillment now plays a big role in our online purchasing decisions.

“Managing the separation of what is to be shipped to different stores in one package is a completely different process than fulfilling orders for the end customer,” he explained.

In its global contract logistics market size report, Ti warned of risks that could pose a threat to projected growth. It said: “External factors such as high inflation, uncertain economic development, geopolitical conflicts and labor shortages have all contributed to greater complexity in business operations and adversely affected demand.”

However, he noted that contract logistics and a business model based on multi-year contracts are proving increasingly resilient.

“Suppliers have largely mitigated inflation concerns by offering open or hybrid contracts where costs are transparent and increases can be passed on directly to customers,” it said.

The world’s largest provider of pure play logistics contracts, GXO, said about 45% of its contracts are open book, while about 55% are “hybrid closed book”, meaning they are partly cost-based plus and some on fixed price, while Wincanton handles approximately 73.5% of contracts on open terms.

Ti Study on purchasing in contract logistics 2023-2024 shows that approximately 51% of shippers have a hybrid contract with their primary contract logistics provider, while 32.7% have an open book contract.