Ocean Transportation
Uncertainty in Logistics Industry Amid Fluctuating Market Conditions
The logistics industry stands at a critical juncture, grappling with a myriad of challenges driven by fluctuating market conditions. A confluence of factors, from punitive import tariffs to shifts in regulatory landscapes, is creating an environment of unprecedented uncertainty.
Market Growth Predictions and Economic Policies
Predicting market growth for 2025 has become increasingly challenging for analysts. The introduction of import tariffs, some reaching as high as 54% on imports from China, has injected uncertainty into both business operations and consumer behavior. In response, logistics providers are accelerating imports to mitigate exposure to these tariffs while prioritizing agility and overflow strategies to adapt to rapid changes.
"Demand in the sector is primarily driven by consumption, with tariff-related uncertainty shaping customer behavior in real time."
In parallel, governmental strategies aimed at reducing the size of the government and increasing its efficiency are viewed as potential catalysts for economic growth. However, the unpredictable hiring and firing of federal workers by the Department of Government Efficiency, led by Elon Musk, has contributed to a climate of greater economic uncertainty. Despite these challenges, reduced government regulations, a more favorable energy policy, and the possibility of lower corporate tax rates are expected to support growth over the next three years.
Performance Across Logistics Segments
Amidst these uncertainties, various segments within the logistics industry have demonstrated resilience, although performance has been uneven. The U.S. ITM segment notably achieved the highest year-over-year growth among all four segments, with a gross revenue increase of 6.5% to $78.8 billion in 2024. This growth was supported by an average increase of 6.7% in ocean freight measured in 20-foot equivalent units (TEUs) and a 15% increase in airfreight measured in metric tons.
However, the U.S. ITM segment also faced challenges, with net revenue declining by 4% in 2024. This decline was primarily driven by a rise in lower-margin ocean freight, which accounts for approximately 98% of total volumes compared to airfreight. Expeditors International of Washington saw a 17.2% increase in gross revenue to $10.6 billion in 2024, with freight forwarding volumes growing by 7% in ocean freight TEUs and 12% in airfreight metric tons.
On the global stage, Beijing-based Sinotrans claimed the No. 1 spot on the top ocean freight forwarder list in 2024, handling 4,872,248 ocean TEUs, marking an increase of 13.1% over 2023. The ocean transportation segment is projected to grow to $31.2 billion in 2024, reflecting continued demand despite prevailing uncertainties.
Dedicated Contract Carriage and Warehousing Dynamics
The Dedicated Contract Carriage (DCC) segment experienced mixed fortunes. DCC trailer types consist of 80% dry vans, 11% reefers, 5% flatbeds, and 2% each for tankers and other trailers. J.B. Hunt Dedicated Contract Solutions saw a 4.6% decrease to 12,647 total DCC power units in 2024, while Ryder remains the second-largest DCC 3PL with 11,400 power units. Schneider gained DCC power units through its acquisition of Cowan Systems, placing third on the top dedicated contract carriers list in 2024.
In the warehousing sector, Amazon holds the No. 1 spot as the leading VAWD 3PL in North America, boasting an estimated 284 million square feet of warehousing space across 465 warehouses. DHL Supply Chain ranks second, with a difference of 121 million square feet compared to Amazon. Globally, Amazon commands an estimated 399 million square feet of 3PL warehousing space in 767 warehouses. The top five VAWD 3PLs in North America reported increases in warehousing square footage, except for DHL Supply Chain.
The VAWD 3PL market segment is poised for growth, driven by the rising demands of e-commerce fulfillment and last-mile delivery. GXO's North American warehousing space reached 84 million square feet in 2024, with one warehouse in Canada. GXO expanded its U.S. warehousing footprint by 6 million square feet, with U.S. revenue growing by 6.1% to $2.9 billion in 2024.
Logistics Real Estate and Strategic Initiatives
The logistics real estate market is experiencing flux due to recent policy and economic initiatives from Washington. Industrial leasing pipeline volumes rose during the first quarter, spurred by key sectors such as food and beverage, consumer products, and transportation. However, progress in the industrial leasing market stalled somewhat after April 2, as long-term supply chain investments were scrutinized amid proposed tariffs.
Space utilization within the logistics industry increased moderately this year, with the IBI utilization rate reaching 85.1% in April. Despite near-record import levels last year, spare warehouse capacity kept utilization lower than normal, although it has been rising in recent months. Market rents decreased at a slower pace in Q1 and varied by region, with rates holding steady in the Midwest, Sunbelt, and along the East Coast.
"Prologis expects deliveries in the logistics industry to contract further in the coming quarters and remain historically low into next year."
The under-construction pipeline in the logistics industry is now 25% below 2019 levels, with rising development costs hindering speculative construction starts. Investment activity is increasing among both coastal and Sun Belt REITs, while senior housing occupancy growth is outperforming other major CRE sectors.
Experts warn that housing could be the tipping point for the next recession. The skyrocketing economic uncertainty underscores the importance for multifamily owners and operators to strengthen risk mitigation capabilities.
In conclusion, the logistics industry is navigating a landscape marked by uncertainty and change. Strategic growth initiatives and automation in the 3PL segments aim to reduce headcounts and increase efficiencies, positioning logistics providers to adapt and thrive in a volatile market environment.