The Global Contract Logistics Market is estimated at US$203.9b in 2017 and is expected to reach US$298.8b by 2025.
Geographically, Asia-Pacific currently dominates the market, however, the market is anticipated to be in favor of the Middle East & Africa, which is projected to witness remarkable growth rate owing to the increase in demand for service integration, data management, and inclination of manufacturers towards more flexible solutions.
Saudi Arabia’s contract logistics market is expected to exhibit immense growth during the forecast period.
The market for contract logistics is highly fragmented and is anticipated to become even more concentrated over time.
This will result in the expansion of logistics services to more geographical locations.
Currently, more than one-third of the market share is captured by Asia Pacific region owing to the presence of a strong manufacturing base as well as flourishing e-commerce industry.
China is leading the contract logistics market in the Asia Pacific; however, emerging economies such as Malaysia, Vietnam, South Korea, and Indonesia are witnessing remarkable growth in their logistics sector.
Asia-Pacific is the fastest emerging region owing to the economic development and dynamic business environment.
Currently, Asia-Pacific is leading the global contract logistics market overtaking Europe.
The growth in this region is attributed to the rising retail enactment, strong economic growth, and increase in disposable income.
Moreover, the increase in urbanization and growth in middle-class population have supported the domestic consumption of fast-moving consumer goods, household items, and luxury items.
As a result, an increase in retail sales in Asia-Pacific is augmenting the growth of contract logistics market in the region.
Rapid growth in the e-commerce sector and rise in foreign direct investment is also attracting numerous non-asset entrants and existing players in this region and further drive the contract logistics market.
Middle East regional logistics hub
In the Middle East region, Saudi Arabia is experiencing high growth in its contract logistics marketplace.
In 2016, Saudi Arabia’s government had launched ‘Vision 2030, which is focused on transforming Saudi Arabia into a go-to logistics hub for the region.
This would enable the country to efficiently link trade across three continents, i.e. Europe, Asia, and Africa.
Also, as a part of this vision, the government reformed certain structures and regulations thus, paving the way toward market liberalization as well as private-sector participation.
Additionally, public-private partnerships are facilitating investments in the infrastructure and bringing in competences from the major logistics markets.
It is anticipated that by 2030 the country will be among the leading logistics hubs in the region.
Segmentation of market
The global contract logistics market has been segmented on the basis of type, services, and end user.
On the basis of type, the contract logistics market is categorized into insourcing and outsourcing. Amongst them, insourcing is the dominant segment as many of the companies are shifting their insourcing to the logistics services.
On the basis of service, the market is classified into transportation, warehousing, packaging processes and solutions, distribution, production logistics, aftermarket logistics, and others. Transportation is the leading segment which is expected to grow at a CAGR of 5.3% during the forecast period.
On the basis of the end user, the market is segmented into aerospace, automotive, consumer, high-tech, industrial, pharma & healthcare, retail, and others.
Amongst them, a retail segment dominated the market in 2017 with the market share of 26.8%, and it is expected to maintain its lead during the forecast period.
The country’s dedication to develop itself as a leading logistics hub is based on its economic weight as well as privileged geographic location. Saudi Arabia is the largest economy in the Levant, the Arabian Peninsula, and the Iraq region, which accounts for nearly 38% of GDP and 21% of the population.
Furthermore, its central location is excellent for distribution to the Levant, Arabian Peninsula, and East Africa.
Also, the country is located on the Asia-to-Europe trade route, through which 12% of container trade moves annually.
Owing to the significant investments in the logistics sector of the country, the contract logistics market is anticipated to flourish in Saudi Arabia.
Recently, Al-Futtaim Logistics expanded its warehouse facility in Riyadh, Saudi Arabia.
Need for an efficient supply chain system for the manufacturing sector is driving the contract logistics market
The manufacturers of various products face stiff competition with their competitors on account of costs, quality, service, and time-to-market.
Also, manufacturers have faced monumental challenges concerning maintaining a perfect balance between the demand and supply of the product in the diverse geographies.
Manufacturing industries thus tend to focus more towards their core competencies of manufacturing and outsource the rest to other stakeholders in the value chain.
The need for an efficient supply chain system for the manufacturing sector seemed to be imminent as contract logistics players focus on several aspects of supply chain management and provide advanced and assured management of goods from the production line until the consumer and reverse, the role of contract logistics becomes much more critical.
The services offered by logistics firms add substantial value to the manufacturing companies.
These firms help different companies to reduce weak points that outcomes in loss of revenue or profits and further help to assure maximal profitability.
Contract logistic companies specialize in several logistics operations which offer network analysis, mode network optimization, warehousing, management of vendor compliance, and other logistics operations.
In contrast with this, it is challenging for the manufacturing companies to gain such logistic expertise in every business division.
Thus, choosing a contract logistics firm, the company is opting for experts in logistics.
This enables the company to devote their time and resources on areas of core competency and actual business instead of using it on managing logistic operations.
Along with this, the company doesn’t need to spend on building their warehouse facility, to hire additional labor, and installing several new technologies by opting for contract logistics which reduces the company’s cost significantly.
Swift growth of manufacturing industry and their focus laid on core competencies, burgeoning needs for achieving cost efficiency, task optimizations & technological integrations pertaining to supply chain activities, and benefits in managing seasonal variations of products are projected to drive the market for contract logistics market during the forecast period.
However, regional diversities and the complex nature of the supply chain may negatively impact the market for contract logistics in the near future.