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Will Logistics Overcome Supply Chain Challenges?

Companies in the logistics and transport industries faced many challenges in the past few years and have drastically changed the way they operate. Driver shortages, capacity issues, shipping delays and piercing global inflation are among the hurdles which led to increased freight and labor costs. The industry had to overcome much hardship during the infamous COVID-19 pandemic, along with recent economic & political escalations the world has succumbed to.

Companies in the logistics and transport industries faced many challenges in the past few years and have drastically changed the way they operate. Driver shortages, capacity issues, shipping delays and piercing global inflation are among the hurdles which led to increased freight and labor costs. The industry had to overcome much hardship during the infamous COVID-19 pandemic, along with recent economic & political escalations the world has succumbed to.

More recently, the logistics and transport environment began prospering in a more stable and positive direction about midway through 2022.

Rising Demand for Digitalization and Preemptive Tech

Today's consumer behavior and expectation has shifted, necessitating that everything is accessible for almost immediate fulfillment at an affordable price. Due to the highly competitive nature of the logistics sphere, on-demand delivery is increasingly becoming a differentiator. Same-day delivery is more than simply a competitive edge; it is now something that many customers demand as the benchmark level of service.

The majority of companies are aiming for digital transformation, as the last two years have demonstrated that demand is erratic in ways unseen before. Supply chain managers must predict inventory and delivery using existing supply chain management technologies (SCMT) to know what to expect and how to cope before the rush occurs.

Contemporarily, these technologies allow companies to achieve higher levels of insight into supply chain data. Big data and predictive analytics can deliver insights that aid in anticipating or responding to crises or disruptions. Many companies are adopting these digitalized predictive strategies to try and brace for the increasingly growing industry.

Labor Shortages in Logistics and Transport

Moreover, labor shortages and a lack of trucking capacity have made it an arduous task to transport commodities to their final destination. Facilities have been constrained, causing corporate operations to suffer as there aren't enough vehicles or drivers to delegate towards demand.

Small trucking businesses have little to no incentives to increase capacity. This prevents them from investing in new vehicles. Companies can address such driver shortage by investing in driver retention, and this seems to be the next step.

The general transport and logistics industries are expected to grow to approximately $172 billion by 2027, with workforce projected to grow by above 4%.[1] Despite potential success and prosperity, external issues such as red-hot inflation have led to the emergence of several challenges that the industry will need to tackle in the near future. 

Now, the question asks itself: How have been the logistics leaders recently performing?

DB Schenker

DB Schenker is among the world’s leading global logistics providers, focused on the global exchange of goods via land transport, worldwide air and ocean freight. Over the past few years, it has been struggling to maintain a profit as it was hit dramatically by the macro-economic factors that occurred following the outbreak of the pandemic, resulting in a harsh operational loss totaled nearly $1.7 billion in 2021. This loss was considerably lower than in the previous year, reported at $3.06 billion in 2020.*

However, DB Schenker closed out the first half of 2022 with adjusted earnings of above $920 million, dramatically shifting its outlook for the coming years, and all this with lesser freight volumes. Sales increased significantly, primarily as a result of the development of freight rates which essentially means moving less cargo at higher prices.

DB Schenker reported that demand volumes in the first half of 2022 had shrunk by a year-on-year average of 4.77% collectively. On the contrary, total sales shot up by 35%, and the company’s revenue jumped by 28% to roughly $29.5 billion. CFO Levin Holle stated that the “first half of 2022 was DB Schenker’s most successful half-year in its 150-year history as a logistics company.” *

Maersk

The Danish shipping company, Maersk, which is active in ocean and inland freight transportation and associated logistic services, is deemed the largest container shipping line and vessel operator in the world from 1996 until 2022. Over the course of the current year, Maersk teams have been working to alleviate issues across their network, as widespread operational challenges have resulted in frequent disruption.

However, despite the first three-quarters of the year proving a test, Maersk is now witnessing a significant improvement in schedule performance. Maersk reported a behemoth 62% growth rate for the company’s earnings before interest, taxes, depreciation and amortization (EBITDA), racking up a staggering $9.5 billion in the third quarter of this year. *

Bad weather conditions are expected to cause disruption to port operations, which will add pressure to the rail and trucking networks as alternative transport. Planning ahead and allowing for unexpected delays through winter may be the best course of action for minimizing the impact on their supply chain.

DHL

The leading logistics giant DHL provides courier, package delivery and express mail services. Frank Appel, CEO of DHL stated recently that the company’s first three quarters of 2022 “were the most successful in our company’s history”. He also reiterated that “even if global growth is losing momentum”, DHL is well on-track to achieve top results.

According to their recent reports, DHL has seen a 20% increase in its revenue for the third quarter of 2022 relative to last year, coming in at approximately $25 billion. * In an attempt to tackle potential and upcoming impediments in the industry, DHL has stated that it will allocate $137 million this year for increasing operational capacity, which includes spending on airplanes and doubling-up its electric vehicle fleet.[2]

Through its flexible structures, DHL was able to efficiently utilize its global networks. Returning growth in the domestic parcel business and the ongoing trend towards e-commerce also contributed to this.

Final Outlook

For those interested to invest in logistics and transport, it would be wise to note that amid consumer demand faltering, energy and inflation crisis persisting, and ongoing labor and material shortages, there are simply not enough comforting prospects to keep global goods trade robustly flowing.

Energy prices may likely remain high; burdening companies’ cost competitiveness and households’ purchasing power, despite government compensation packages. You may have missed the boat, but nothing’s for certain.

But it is important to look out for the effect of automation in transportation, along with the increasing digitalization of supply chain management strategies. These two factors could be the driving force to tame the ever-rising operational costs and the unpredictable demand peaks, which may bring about the silver lining investors are hoping for in the near future.

Adam Austera, Analyst of Ozios

 

[1,2]Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.

 

*Past performance is no guarantee of future results.

Disclaimer:

The material herein is considered as marketing communication under the relevant laws and regulations, and as such is not a subject to any prohibition on dealing ahead of the dissemination of investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and should not be construed as containing investment advice, or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. The published content is intended for educational/informational purposes only. It does not take into account readers’ financial situation, personal experience or investment objectives. APME FX Trading Europe Ltd makes no representation that the information provided is accurate, current or complete; and therefore, assumes no liability for any losses arising from investments based on the supplied content. The past performance is not a guarantee of future results.

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