The pandemic extremes are gradually fading in transport and logistics, but normalisation comes with after-shocks and sanctions are shaking up trade routes. So what does the year ahead have in store for shipping, container shipping and aviation?
For (inland) goods transportation, 2023 is a year of stagnating tonnage and some segments will show declines. On the passenger side, however, it’s the opposite. The pace of recovery is exceeding expectations since travel has opened up post-lockdowns and restrictions. As consumers continue to prioritise travel, the double-digit rebound of aviation is helping to push growth in the global transport and logistics sector to 4%, exceeding global GDP growth. After the unprecedented drop in 2020, the sector will exceed its pre-pandemic level by the end of the year.
After digesting the initial ‘after shocks’, the global economic slowdown will have a stronger impact in 2024, leading to a more challenging year for most of the sector.
For public transport volume, 2023 is a year of continued recovery as well. Rail figures in European countries were still significantly below pre-pandemic levels in 2022. Full recovery won’t be reached in 2023, but figures are trending up and weekends are relatively busy.
On the goods side, recent stretched and vulnerable supply is helping transport and logistics companies navigate their way through a phase of lower demand. With shortages fresh in mind, companies in road transport have managed to pass on higher costs fairly well despite a sluggish market. In container shipping and logistics, locked-in higher rates – accounting for more than half of the volume – will expire in batches over 2023, leading to falling profits into 2024.
Three Developments Shaping The Future Of Transport And Logistics
Global supply chains continue to stabilise in 2023, and much of the congestion in shipping and port capacity has been solved. But it will also take time to fully digest the effects of the pandemic and war-related supply shocks. Lead times of airfreight and containerised seafreight are still longer compared to pre-pandemic standards and arrival performance rates still have upward potential. In the highly regulated aviation sector, spare part supply is an ongoing constraint and consequently aircraft manufacturers are limited in ramping up production.
Commodity trade patterns have adjusted to sanctions on Russia. This is most visible in energy commodities trade to Europe and more indirect trade flows. On balance, this leads to reshaped routes, less efficient trade and more sea miles – which benefits tanker shipping.
The U.S. is attempting to ramp up regional production to move away from its dependence on China, increased with digitalisation and the shift to green technologies like electric vehicles. This is a long-term process. So far, we don’t see massive deglobalisation, but rather diversification. In Europe, the Supply Chain Due Diligence Act could impact sourcing routes.
Supply chain uncertainty probably remains higher. Structural labour market shortages are a reason for this, and an increase in climate change-related (extreme) weather events also pose a larger disruption risk. The restrictive low water levels on the Panama Canal – a crucial link on the Asia-U.S. East Coast trade – are a recent example, and the return of El Nino could also lead to extreme weather going forward.
A Change In Transport And Logistics
While the extremes of the Covid-19 pandemic supply shock have faded, the sector is still witnessing the ripple effects of normalisation in consumer behaviour and prolonged capacity issues. At the same time, the economy is slowing and industrial production is slumping. The supply shock from the pandemic and the impact of the war in Ukraine have also left their mark on various parts of the transport and logistics sector. Either long because of excess capacity after a historic boom (in container shipping) or short because of lagging deliveries of aircraft and capacity-absorbing rerouting because of sanctions (in shipping). While consumer goods logistics is facing a correction, there is a sunnier outlook for aviation which is benefiting from pentup travel demand, while public transport is also becoming busier again.
Supply chain resilience remains more important for shippers in the post-pandemic world, and contract logistics can benefit from that. Shippers seem to be sticking to higher buffer stocks to increase supply chain resilience. With the lessons learned from the pandemic, supply chain management (and risks) are still high on the agenda. Logistics services are structurally more profitable than A to B transportation.
Before the pandemic, the total transport sector accounted for a fifth of global CO2 emissions, with road traffic making up three-quarters of it. From an economic and business perspective, CO2 emission development is increasingly important. CO2 emissions have their price and this will gradually be incorporated into business models, since shippers and operators are increasingly pushing for progress with regulatory pressure, sustainability reporting obligations and corporate ambitions. The European emissions trading system (ETS) is already introducing carbon pricing for aviation and shipping.
CO2 emissions in transport (also including autos) dropped by more than 16% during the pandemic, with falling road traffic and the collapse of airline traffic. With combustion engines returning in larger quantities on motorways in 2021 and more aircraft returning to the skies in 2022, CO2 emissions returned to 96.5% of pre-pandemic levels last year.
Given the progress in electrification within the global car fleet (in 2020, 1% of the global stock was electric, rising to 2.5% in 2022, including plug-in hybrids), but also efficiency efforts in trucking, aviation and shipping, transport CO2 emissions are expected to continue to rise at a lower level than demand. This means the average carbon intensity of transport activity will decrease.
Electrification of the global car fleet continues, and in aviation the strong rebound in passenger numbers is likely to offset gains made by using more sustainable aviation fuels. The International Energy Agency expects oil consumption of transport to start declining after 2026.
Source: ING