International transport and logistics market grows to €2.7 trillion

01 December 2016 Consultancy.uk

The transport and logistics industry has seen considerable revenue growths in recent years, although across many companies profitability growth has been lacklustre. A new report explores trends and key dynamics in the industry, finding that the market is valued at around €2.7 trillion, yet, when it comes to financial performance, the differences between segments is considerable.

The transport and logistics (T&L) industry is huge. Globalisation, coupled with population growth and consumption behaviour, has seen ever increasing demand for products from all corners of the world. The rise of e-commerce has added to the transport boom, and over the past decade considerable growth has been seen across the industry’s value chain as a whole.

In a new report from The Boston Consulting Group (BCG), titled ‘Transportation and Logistics in a Changing World’, the consulting firm explores, among others, recent market trends for the various segments that make up the wider value chain of logistics related activity. The research covers data related to 500 T&L companies across 16 industry segments.

Logistics execution dominate €2.7 trillion industry

Transport & Logistics market size

The T&L market is relatively diverse across its value chain in terms of companies interacting to bring about the markers’ wider economic and on the ground effects. In terms of market segments contributing the most to the €2.7 trillion industry, logistics execution comes out far ahead, at €2.3 trillion, led by road transport with an almost €1.4 trillion impact. Sea transport, which has entered troubled waters in recent years, took the second spot – totally €312 billion in revenues. Other segments, such as logistics infrastructure, generated €257 billion, while logistics services managed €658 billion, while €16 billion can be attributed to logistics advisors. €586 billion of ‘consolidation’ is removed by the firm, in relation to the effect of double counting within the wider value chain.

Growth

Since 2005 the industry, on average, has seen a modest uptick in revenues. Indexed against 2005, revenues have increased 22% with CAGR of 2.9% across the industry. Profitability has been considerably harder to achieve, even on increasing revenues, with average EBIT up 2% in the same period at CAGR 0.3%. Considerable variation exists across companies in their respective segments, with the top 10 T&L companies per segment significantly outperforming the average on revenue, up 37% on average with CAGR of 4.6%, while EBIT was multiples higher, at 18% for the period at CARG 2.4%.

According to the firm’s analysis, the considerable variation in performance, between average and top performers, resulted, in some instances, from failed growth strategies seeking to boost market share in new geographies are partly to blame for lacklustre results, as well as poorly executed M&A deals, whereby integration didn’t result in expected gains. Top performers however, the firm believes, were able to implement a range of best practice strategies and take advantage of global megatrends.

Market comparison

While return on capital employed for the T&L industry was less than the cost of capital during the period 2011 to 2015, the industry only just missed the mark. Fashion and luxury dominated the index, at 22.9% on average, followed by technology, at 19.9% on average. The results for T&L come in at 10.1%, just slightly behind mid-cap pharmaceutical at 11.1% and in front of travel and tourism, at 9.6%.

Companies posting good returns across segments

The T&L industry’s average total shareholder returns (TSR) were, however, not too bad, coming in at 11.4% annual average return over the period 2011 to 2015, just shy of 12% average for all major industries. For top performers, TSR came in considerably higher, at 26%, although well shy of market leader mid-cap pharmaceutical which has averaged an almost criminal 60.1% TSR average per year over the same period.

Performance spread

The research also explored the range of returns generated by companies across segments in terms of their annual return of assets (ROA). The research highlights that hinterland terminal companies have the most positive spread, with the poorest performer managing -0.4% ROA between 2010 and 2014, while the average company in the segment managed 10.8% and the top performer 19.7%. Road transport showed considerable variation however, with the top performer bringing in 25.6% while the lowest performer managed -23.8% – the average for the segment stood at 6.5%, just above the total industry average of 4.6% over the period. 

Container shipping and tanker shipping saw the lowest average ROA in the period 2010 and 2014, at 1.7% and 0.8% respectively. Rail network providers, port authorities, warehousing, air transport and postal delivery all, too, saw below average ROA over the period. 

Growth expectations across T&L segments

Future outlook

In terms of growth of the wider industry, logistics infrastructure will see almost across the board real growth in the years between 2014 and 2018. Hinterland terminals, which saw impressive 13.2% CAGR between 2010 and 2014, will see growth drop to 5.4% CAGR, while rail networks will remain relatively stable at 5.2% and 5.1% CAGR respectively over the same period. Airports are the only category in the segment which is expected to see growth fall below inflation within the industry, at 2% CARG between 2014 and 2018, following strong growth of 6.8% CAGR between 2014 and 2018.

Logistics execution will see a number of industries fail to meet real growth, postal delivery is the hardest hit, falling from 0.9% to 0.6% CAGR between the periods 2010-2014 and 2014-2018. Sea transport, will pickup slightly, increasing from 0.3% CAGR to 2.2% CAGR. Logistics advisory services will, according to the study, enjoy strong growth, falling slightly from 10% to 9% CAGR between the two periods.

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