Profit Margins Rose for Logistics Companies During Recession

July 8, 2010
The contract logistics sector performed well during the global recession. While revenues of most companies shrank by roughly 10 percent, profit margins overall actually increased

All things considered, the global contract logistics sector has performed well in what has been the worst market environment for many years, according to market analyst firm Transport Intelligence. Research shows that while revenues of most companies have shrunk substantially—roughly 10% globally—profit margins overall have actually increased.

The study suggests that the defensive characteristics of the sector are a result of the 'open-book/cost plus' nature of many of the contracts in place, which means that costs are passed on directly to their clients. Their margins therefore remain less exposed to the state of the economy, although lower activity levels obviously impact on revenues. Even here, in many cases, agreed minimum volume levels offer protection.

The picture is somewhat complicated by various business models employed by logistics companies. For example some providers offer networked services, or provide distribution operations on a multi-user basis. Here the risk is borne by the logistics operator, and although there are greater upsides to profitability in good times, there are much greater risks when volumes fall below break-even.

However, the vast majority of players in the market operate both types of models and this combination of riskier, shared user operation and more stable, dedicated business provides a balanced portfolio.

The study reports that the uncertainty which characterized 2009 has been replaced by a confidence that things are indeed going to get better and this sentiment is reflected in positive market forecasts.

"We are witnessing a significant upturn in activity after a tumultuous 2009," says John Manners-Bell, chief executive of Transport Intelligence. "We believe that after this rebound the recovery will moderate somewhat, but that the next five years will see the return to strong growth in this robust sector."

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