The past couple of months has seen a dramatic fall in the dollar particularly against the Euro, although as yet the effect has been less marked against the Japanese Yen or the Chinese Yuan (which shadows the dollar). This trend is likely to be part of a long anticipated re-alignment of the world’s economy.

The US has been financing its imports with debt from Japan and China for too long and now holders of that debt are becoming concerned that their US Bonds, which are denominated in dollars, will fall in price. The Chinese central bank has indicated it holds this opinion, naturally triggering a further fall in the dollar. The implications of this on logistics markets are likely to be substantial.

Firstly the combination of slower domestic demand and higher prices for imported finished goods will slow import growth into the US. This will affect demand for container logistics assets ? shipping, ports, rail ? into the West Coast in particular. It may also alleviate the hectic rate of export growth out of China. This may be serious for container rates.

The counter balance may be that exports from the US will grow faster, however US exporters are less exposed to manufactured goods and it will take time for the US economy to orientate itself to the new economic conditions.

Secondly, fuel is bought and sold in US dollars. All those companies buying fuel will gain from lower costs, and those selling their services in other currencies such as the Euro will see their prices maintained. This must already be having a positive affect on global logistics companies’ profitability.

It is unclear who the beneficiaries of the new economic conditions will be. The determinates of freight rates are highly complex, reflecting the level of market confidence as much as supply and demand conditions in the short term. The big European freight forwarders - K+N, DHL, Schenker, Panalpina - who are exposed to contracts priced in dollars but report in European currencies - seem likely to suffer although they will also have the flexibility to adapt to new traffic patterns. Local logistics providers in countries such as Germany will also be hit as their exporting customers reduce the level of traffic to the US.

A key issue is that the Euro Zone does not offer the domestic demand driven growth prospects that can substitute for lower dollar denominated demand. Both Japan and China are likely to expand domestic consumption, with the domestic logistics sector being a major beneficiary of such growth. However again this is unlikely to be sufficient substitute for the huge appetite for globally sourced goods that the US has exhibited.

The spending binge of the US has been the foundation for the impressive growth the logistics market has seen on a global and local basis. With American consumers moderating their appetites it seems reasonable to conclude that global logistics markets are likely to experience substantial moderation in growth in the near future.

Source: Transport Intelligence

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