Third party logistics industry in overview

Third party logistics industry in overview1

The logistics industry plays a pivotal role in the global economy, acting as a bridge between manufacturers and consumers, and directing the flow of goods and services. The industry evolves continuously to serve the dynamic needs of a globalising world, enabling it to remain resilient to short-term disruptions and maintain robust growth trends.

Third party logistics (3PL) provide high reliability at a low cost and this has had a positive impact on the global logistics industry growing as a market. As such, global logistics costs are projected to grow at a compound annual growth rate (CAGR) of 6,7% (2017 to 2022), fuelled by emerging markets including India (CAGR: 10,1%), China (CAGR: 10,6%) and Africa (CAGR: 7,5%). Global logistics costs are impacted by the quality of physical infrastructure, the sophistication of communication systems, the adoption of technology and the presence of bureaucratic hurdles. As a result, logistics costs as a percentage of gross domestic product (GDP) tend to be lower in advanced economies compared to emerging markets.

Key drivers for the projected robust growth include:
  • Significant infrastructure investments and demographically driven economic development in emerging markets;
  • Growing urbanisation;
  • Increased consumption of fast-moving consumer goods;
  • The emergence of new distribution channels (e-commerce); and
  • Re-design of complex supply chains to reduce time-to-market.

Africa is one of the most rapidly growing regional economies in the world. While Africa's growth rate has slowed over the past few years (overall GDP growth from 2000 to 2010 was 5,4%, compared to 3,3% over 2010 to 2015); fundamentals remain strong with the International Monetary Fund projecting growth of 4,1% to 2023.

Key factors that will influence the pace of GDP growth in Africa include rapid urbanisation as the world's fastest urbanising region, a young and growing population with a workforce projected to be greater than China or India by 2034, and technology-driven change that has the potential to unlock new opportunities for consumers and businesses by enhancing growth and productivity. These factors will drive increasing and fast growth in consumer demand and business supply chains, in turn offering growth potential for large-scale industrial and service companies (including Imperial Logistics) across the continent.

The Logistics Performance Index compiled by the World Bank provides a comprehensive measure of the efficiency of international supply chains on a global scale. South Africa ranked 20th out of 160 countries in 2016 and it is also only one of the two countries in the top 30 that are not classified as high-income countries. South Africa's logistics industry plays a pivotal role in the African region due to its role as a regional transportation hub and its superior freight network, compared to neighbouring countries, certain of which are landlocked and lack the requisite infrastructure.

European 3PL markets have a high potential for outsourced logistics services due to their current low penetration of around 25%. In addition, major European 3PLs, as well as Imperial Logistics, are uniquely positioned to pursue an active mergers and acquisitions strategy within emerging markets to tap into the growth story and build economies of scale.

1 Based on Armstrong & Associates Report on 3PL market trends and analysis, June 2018 and McKinsey Global Institute: Lions on the Move II: Realizing the Potential of Africa’s Economies.