It's pretty hard to pin down trends in logistics in this market. What we can see is that air cargo demand is hovering in the negative 20-30% region since the end of last year. Seafreight has similar numbers on decline, and with the upcoming 'peak season' that would traditionally have started in April, there would be a small upwards tug to these figures but not enough to pull them out of the doldrums.

According to IATA, cargo demand in April has 'stablised', albeit at the shockingly low level of -21.4%. What this means is that for the fourth consecutive month, international air cargo demand has moved sideways in the -21% to -24% range since its plunge from -7.9% to -23.2% between Oct last year and Jan 2009 said IATA in end April. Small consolation.

The Association of Asia Pacific Airlines (AAPA) said in end-April that international freight tonne kilometres (FTKs) registered a decline of 21.9% YoY to 3,880 million. The AAPA average international cargo load factor fell by five percentage points to 63.2%.

Now, over to ocean freight. According to industry consultants Drewry, the freight rate for a 40 ft (FEU) box from Hong Kong to Los Angeles, would have been $1,799 in April 2008. In approximately the same week a year later, April 2009, Drewry's benchmark table shows the rate to be $1,075, a decline of 40.2%. The Asia-Europe trade has been making headlines since January with box rates that are said have plunged to zero dollars.

Now, here's another trend, on the upside this time, in case you were looking for positivity. According to AXS-Alphaliner (axs-alphaliner.com) which tracks container shipping fleet and capacity, for the first time in six months, there were lesser container ships that were idled in the first half of April. On May 7, eyefortransport.com reported that the idled fleet is expected to lessen in coming months as suspended seasonal loops and larger ships are re-introduced. "Shipping companies, K-Line, COSCO, OOCL, Hanjin and MOL, among others, are also anticipating a re-deployment of laid-up vessels as idle fleet capacity picks up" Nevertheless, AXS-Alphaliner warns that the idle fleet could soar to more than 2mn TEU after the peak season.

On this track, Drewry Shipping Consultants published a report in April called "Capacity Management: surviving the container crisis" that implies the carriers have been cruising during the downturn and not really implementing powerful enough measures to ensure its collective survival.

"So far they have been altering capacity via service suspensions, slow steaming, service deviations and lay-ups. While some of these strategies are more effective than others, few if any carriers have yet adopted the full suite of measures consistently and there is still reluctance on a collective front to tackle the dire situation head-on. We still expect some major operators to fail this year," said Drewry.

The operators who move the fastest and employ the most radical strategies will be best positioned for recovery in the long term. "Without a doubt, scrapping and wholesale cancellation of the container orderbook are the two most effective tools of capacity management. While scrapping has increased significantly since the fourth quarter of 2008, it will not alter the fleet enough to make a real difference and carriers will not start sending ships younger than 20 years to the scrap yards.

"Unlike in the bulk sector, cancellations of container ships have been very scarce indeed and for the moment at least carriers seem reluctant to forfeit large initial downpayments on their orders made in 2007 and yards are definitely playing hardball."

According to Drewry, over 50 main services have been suspended from the core east-west trades since October 2008, but while the end result has led to a net 20-25% reduction in overall capacity on the Asia to Europe and Mediterranean routes, relatively few vessels have been laid up. This also has not arrested the very sharp decline in freight rates.

Meanwhile, in a post on May 12, Bloomberg.com reported that A.P. Moeller-Maersk A/S, owner of the world's largest container line, may post a full-year loss for the first time in at least half a century after freight rates declined because of falling trade.

According to Bloomberg, Maersk had a first-quarter net loss, including minority interests, of 2.13 billion kroner ($390 million) compared with profit of 5.22 billion kroner a year earlier, the Copenhagen- based company said in a stock-exchange statement. The loss was wider than the 821 million-kroner median estimate of nine analysts surveyed by Bloomberg. Sales dropped 12% to 63 billion kroner.

Maersk Line, which owns more than 450 vessels with combined capacity of 1.9 million containers, has lost money while adjusting to the global economic slowdown and increased competition on trade routes. The company, according to Bloomberg, said it expects to report a loss in the second quarter and "can't rule out" losing money for the whole year.

Hong Kong

Let's look closer to home at how logistics service providers are faring. For 2008, the Hong Kong International Airport handled 3.6 million tonnes of cargo, a 3.1% decline over 2007. Cumulative figures for the first three months of 2009 recorded cargo volume down 22.8% to 676,000 tonnes, reflective of IATA's regional results.

According to IATA, the severity of the air freight slump is at least partly driven by manufacturers seeking to correct large inventory overhangs that emerged in late 2008. The stabilisation of the inventory to sales ratio has in turn stabilised air freight demand. Recovery, however, depends on purchasing that can deplete the inventory overhang. Inventory levels remain high and final demand is weak.

The Hong Kong port meanwhile, managed to reach a new high in 2008 of 24.5mn TEU, at a growth of 2.1%. The last quarter of 2008 registered a 7.6% drop, which extended into 1Q 09. For the first three months of 2009, the Hong Kong port handled 4.6mn TEU, -21.1% over the same period last year. In January, the port's throughput was down 23.6%, in February it was -20.6%, and in March -18.9%.

The ports across the boundary in Shenzhen saw a modest growth of 1.5% for 2008, with container capacity handling total of 21.4mn TEU. In 1Q 09, the Shenzhen ports handled 3.9mn TEU, a decline of 20.9% over the same period last year.

So is the shipping and transport industry slowly pulling out of the slump? Let's put it perspective with the logistics industry. China's National Development and Reform Commission (NDRC) said the country's logistics market grew by 15.4% in 2008 (valued at US$290 billion). The rate was 4.5 percentage points down from the previous year. It has been reported the major multinational logistics service providers based in China have seen YoY volume drops of 20% or more, reflective of the global trend.

So, are economists on track when they predict an upcoming peak season, based on the premise that overseas buyers will need to start replenishing stocks that have been depleted over the past several months, and into the summer?

Coupled with this prediction is the reality that in these past months when business has been slow or non-existent, logistics companies have been forced to undergo overhauling, reassessment, re-alignment, etc. "The rapid slowdown in global markets is driving a renewed focus on tightly managing intercontinental supply chain costs," pronounced the research paper entitled 'Managing the New Uncertainty" published by Olin Business School's Boeing Center for Technology, Information and Manufacturing (BCTIM) at Washington University in St. Louis, as quoted by Cargo Business Newswire (www.cargobusinessnews.com).

The findings conclude that "shipping full-container loads with specific delivery dates is the logical next step in ocean service."  Day-definite service, the practice of delivering ocean cargo on a specific date agreed to by a shipper and carrier, which had been aimed at less-than-container load (LCL), should now be a strategy used for full container loads (FCL). "Day-definite FCL service is a highly beneficial product innovation for progressive intercontinental supply chains and the managerial efforts to make them leaner."

The strategy certainly addresses the 'time-definite' advantage that airfreight provides, and if applicable to ocean freight, we can only hope the rates for such a service will also be more compatible with seafreight rates.

Hong Kong's own homegrown companies have been delivering exceptional logistics services for decades. Preford, a forwarding company formed in 1991 and now with 10 offices in China, Vietnam and Cambodia, has been excelling in importing and exporting to Europe.

The company has been providing logistical services to the REWE Group, a leading European retail trading company. As a result, Preford formed a subsidiary, SRTS Far East Ltd, to arrange all the carrier bookings out of the Far East & Greater China to Europe for REWE. The bookings involve over 65,000 containers and over a dozen carriers.

REWE and SRTS Europe GmbH have developed their own logistics software for data exchange for all current and intended supply chain parties. This software was implemented by SRTS Far East in 2007 and has improved the information and communication flow significantly for all parties.

REWE Group, with 13.000 stores and 300,000 employees in 16 countries in Europe, moves approximately 65,000 containers per year and is expected to have a 20% increment of volume in the year of 2009.

"SRTS Far East is a Hong Kong-based company with own offices in all major Chinese seaports and cities, and with branches in Vietnam, Thailand, Indonesia, Malaysia, India, Pakistan, Ski Lanka, and Bangladesh," said Stanley Chan, Director of SRTS Far East Ltd. "We have bee shipping for REWE commodities such as foodstuff, toys, garments, DIY products, etc, to supply their grocery stores in Germany, the Ukraine, Romania, and other places."

REWE is a member of the COOPERNIC alliance that includes the firms Colruyt (Belgium), CONAD (Italy), COOP (Switzerland) and E.Leclerc (France) alongside REWE Group (Germany). They aim to strengthen the companies in their national markets through closer multilateral cooperation.

Encompass

Encompass Global Logistics, LLC call themselves an 'innovative' supply chain solutions company because they bring new methods and solutions to the traditional supply chain industry.

"I didn't take much time in-between the sale of US Lines and forming my own company. On March 1, 2008, I established Gong Brothers Holdings International Limited, a company that focuses on supply chain, production quality control, consolidation, transportation, distribution." He felt that he had learned all there was about shipping and decided to go explore the other segments of the overall supply chain.

"When I started my holding company, I wanted to build a company model that was recession-proof. On March 1st, 2008, when we launched Gong Brothers, it was a high time. Everything was booming.  But what I felt was that I wanted to create a company model that could also withstand the opposite situation," said Cheng. It might have been his sixth-sense, but, during the best of times, he said, one still had to be cautious and plan for the worst of times.

"Because I was in the liner trades, I could see that the shipping industry could not sustain the same way of operating. Prices had gone up so high; consumer spending could not be maintained at that level. There had to be a saturation point," said Cheng. "I don't have a crystal ball, but I thought that at that point, I needed to focus on the earliest part of the supply chain, the bottom, or the sourcing part.  The 'sub-end' of the supply chain, which also includes production. Oil prices were going up, and one could see that consumer spending could not be maintained at that level--there would be a saturation point."

Working with Cheng is his equally-experienced and highly-capable wife, Linda J. Huang, as Director, HR & Staff Benefits. She also brings a wealth of shipping and logistics experience to the business, having worked for Maersk Line, among others, in the past.

Completing the team is Kevin Kroft as Chief Financial Officer. Kroft was CFO and co-founder of US Lines. He also served as CFO with Australia-New Zealand Direct Line (ANZDL) for 10 years. During his tenure with both companies, he was responsible for all aspects pertaining to the development and maintenance of the companies' global finance functions, as well as their administration, risk management, legal, tax and shareholder/board reporting activities.  In addition, Kroft played a significant role in the business and strategic development activities for both companies, leading to substantial business growth, acquisition, diversification and multiple successful strategic sales.

"We are a small company, so we are flexible," Cheng pointed out. "We offer multiple products, both vertical and horizontal solutions. I have been in the industry for many years now, so I can look at a product and identify the logistics solutions needed. Clients want us to look at their supply chains and re-assess them, because maybe they already priced their product at the bottom but still need to cut costs further. We find parts of the supply chain that can use a different method. Maybe we talk to their consolidators in southern China doing airfreight and we suggest they consider a combination of sea and air freight, repackaging and pick and pack. There are so many options."

Encompass is dedicated to working with service providers and distributors that consistently demonstrate highly-ethical business standards and represent truly value-added services and environmentally-conscious consumer products. Through one of the company's related companies, Encompass facilitates the exclusive distribution of various well-known organic brands from the U.S. and Switzerland to major organic and health stores located throughout the greater China region. And, to top it all, when feasible Encompass donates a percentage of the residual profits to a customer-nominated charity.

"Despite daunting global economic challenges, Encompass is an ambitious, growth-oriented and visionary new niche operator in what has typically been a very traditional and somewhat under-performing industry," Kroft said when he joined the company. He further added: "Encompass is well-capitalized and firmly positioned to add-value and deliver consistent service excellence to its rapidly-growing customer base.  I'm looking forward to supporting the management team and contributing in whatever way I can to the future growth, success and expansion of Encompass, solidifying its reputation as being a leading provider of innovative global logistics solutions."

Encompass has two regional headquarters. Serving Asia, Encompass is based at its state-of-the-art global headquarters in Ocean Centre, Kowloon. Encompass's North American headquarters is located in Orange County, California.  Key business functions such as sales, marketing, customer service and local finance for North America is centralized in the California office to better serve the region's customers and to facilitate the company's planned expansion. For more information, please visit www.shipegl.com.   

World Courier

World Courier is the American-owned company that has excelled as a niche player in Clinical Trials Logistics and management. Established in Hong Kong in 1980 and operating in China for 25 years now, World Courier has been the leader in the scientific field. Since its establishment in 1969, it has been a part of over 7500 successful trials completed throughout the world.

"Global Cold Chain Solutions is another area it covers," said Henning Voss, Director (North Asia), World Courier Hong Kong Ltd. "As cold chain shipments excursions face increased scrutiny from regulators around the world, it is more important than ever before to get it right the first time. World Courier can be said to be the sole truly global logistics provider to offer a cold chain transport service. "

Another World Courier product is its 24 Hour Premium Courier Service which has proven to be the most reliable for shipments requiring the utmost in speed and care and which caters to the special demands of the medical, high-tech, and automotive industries.

"I think we are lucky because even in this economic downturn, there is a great demand for our core business. Our position as a specialist niche market courier is even more important in this downturn because we are operating mainly emergency logistics. Of course, emergencies still happen in crisis time and our JIT products can help save significant amounts of money. For example, in the automotive industry, using a 24-hour premium courier service may be able to prevent production line stoppage," said Voss.

"In the pharmaceutical industry, our service is vital such as bringing research samples out of Hong Kong. And in our core business clinical trials, the region I cover, North Asia with China and India, have become major clinical trial centers today as it is more economical than Europe or the US, particularly in the testing of new drugs."

Clinical trials are trials to evaluate the effectiveness and safety of medications or medical devices by monitoring their effects on large groups of people.  Clinical research trials may be conducted by government health agencies, researchers affiliated with a hospital or university medical program, independent researchers, or private industry. Usually volunteers are recruited and subjects are generally divided into two or more groups, including a control group that does not receive the experimental treatment, receives a placebo (inactive substance) instead, or receives a tried-and-true therapy for comparison purposes. Clinical trials help prevent harmful treatments from coming to market.

During the SARS epidemic, World Courier flew research samples from Hong Kong to testing facilities all over the world.

"High research and development costs in developed countries have sparked growing interest in China where clinical trials can cost 30% less than in the US and where drug development can total just 10% of western spending," said Allen Yan, General Manager for World Courier (Shanghai) Co. Ltd.

Currently representing a US$15 billion market for pharmaceutical products, China is on track to become the world's fifth largest single pharmaceutical market by 2010. "The biopharm industry in China has grown by 20% in just the past five years," says Yan. "At World Courier, our aim is to bridge the gaps in service and infrastructure to meet demand from global pharmaceutical companies choosing to conduct more cost-effective research in China."

 "We handle the transportation aspect. When a pharmaceutical company develops a new drug, it gets a license for 12 years and during this time they are the only company allowed to manufacture and sell this drug. This includes the time it takes them to produce the drug and take the drug through the clinical trials. And the faster you finish the clinical trial, collect and record the data, the faster you can get the drug to the market where you have a monopoly for that particular drug. Needless to say, the shipments and packaging for this type of courier service is highly specialised, and temperature control is a key factor. We conduct our own DG training, and all the staff takes these courses," said Voss.

"So basically it is in the interest of the pharmaceutical industry that a clinical trial runs very smoothly. We conduct our own DG training specifically for the shipment of infectious and diagnostic specimens. All of our staff, for example, knows how to pack 'whole blood'. We also produce our own packaging materials ourselves especially for the temperature controlled shipments such as prototypes for the pharmaceutical industry," said Voss.

"The main point is that we help companies conduct clinical trials faster and more efficiently. If they work with a partner that is not as reliable, the agency (such as the Food & Drug Administration of the US) can go back to them and say that the data is not usable because most of the shipment of their samples did not arrive intact and so the data was corrupted. And if you have to repeat the clinical trial, this can cost the company hundreds of thousands of dollars. So that's why we always stress temperature, temperature, temperature!" explains Voss.

"Not having our own aircraft can be both an advantage and a disadvantage. The advantage is that it allows us to be faster than the four top courier companies  when it  comes to transit time, because every single shipment we have is on a 'next flight policy'. It is not going to be consolidated and travels on the first available, most direct flight to the destination. DHL, FedEx, TNT or UPS are bound by block volumes," said Voss.

As part of its strategy to improve access to China's vast pharmaceutical market, World Courier has already developed an extensive domestic network of 43 cities within China and opened a GMP-compliant investigational drug storage facility in response to unprecedented industry demand. This June, the company will host its 18th International Seminar on Global Clinical Trial Management and Pharmaceutical R&D in Beijing to help foster industry awareness of the challenges and benefits of outsourcing to China.

Kuehne+Nagel

Bremen-based Kuehne+Nagel Group used cost-cutting measures and increased sales activities to counteract the severe, recession-related decline in volumes in the transport and logistics business. In global seafreight market, K+N said that while the negative trend from the 4Q 2008 continued into the first two months of 2009, it was able to gain additional market share in March. The result was a 13% volume drop in the 1Q 2009, which was less than the market average.

The airfreight business was particularly affected by the recession, said K+N in announcing its 1Q 2009 results, with a global market decrease of more than 20% compared with the previous year's period. But strict cost control and intensified sales activities mitigated the impact on Kuehne+ Nagel's performance. So despite an overall volume decline of 17.9% compared to the previous year, substantial new business was generated.

"The solid performance in the first quarter confirms the efficiency of the measures we have taken at an early stage and implemented on a worldwide scale to adapt our enterprise to today's economic environment," said Reinhard Lange, CEO of Kuehne+Nagel International AG. "Since it remains impossible to predict by when the global economy will recover, we will adhere to our dual strategy of rigorous cost control with a commitment to market share expansion."

Global contract logistics

The global contract logistics market grew at 5% in 2008 according to the latest report published by Transport Intelligence, Global Contract Logistics 2009. This represents a significant weakening of the market after several years of growth of around 10%.

Most worryingly for the industry is that the majority of this growth occurred in the first three quarters of the year, with logistics companies really noticing a drop off in volumes during the 'peak shipping' season. This downturn has been felt well into 2009, although there are signs that the fall in volumes may well have bottomed out by the end of the first quarter.

The highest rates of growth were seen in developing markets such as Asia Pacific, Central & Eastern Europe and Latin America. China's market development cooled, but with GDP growth still in the high single digits, and a $585 billion stimulus package taking effect, underlying economic activity will continue to drive its logistics sector.

According to John Manners-Bell, CEO of Transport Intelligence, 2009 will be a tough year for the industry, despite the contract logistics sector having more 'defensive' qualities than some others.

While contract logistics companies have a higher degree of protection from market volatility due to agreements and relationships they have in plac with their clients, they still need to look at reducing supply chain costs in a market sales meltdown. Contract logistics companies will increasingly find their margins squeezed at the same time as their underlying revenues weaken. Logistics providers will have to work hard at increasing their value proposition to clients if they are to avoid the worst excesses of the recession.

In such volatile times, forecasting the next five years is highly problematic. However taking into account the significant falls in contract logistics revenues being experienced in 2009 and also the latest economic forecasts which do not expect a significant recovery until 2011, Ti believes that the market will grow with a CAGR of 2.4% between 2008 and 2012.