News / An unstable freight market driving demand for contract logistics

Photo: © Prasit Rodphan | Dreamstime.com

Despite the headwinds in the freight market, there is ample potential in contract logistics, according to one major player.

Patrick Kelleher, who became CEO of GXO Logistics in August, is upbeat on his company’s prospects and reckons the contract logistics market is still growing.

Observers share his take: a recent study by Insight Partners predicts compound CAGR of 7.2% will push contract logistics revenues to $525.29bn by 2031.

Future Market Insights’ Contract Logistics Market Size and Share Forecast Outlook 2025-2035 forcasts the market to grow from an estimated volume of $322bn this year to $621.6bn by 2035, which translates into 6.8% CAGR, up from 5.9% in the 2020-2025 period.

Other logistics providers are similarly upbeat. Bob Imbriani, EVP international at Team Worldwide, noted: “We’ve seen  an increase in contract warehousing services for a while – not rented space, but where the provider runs an entire warehouse for the client.”

His company is currently negotiating a contract that would involve several warehouses.

And AIT Worldwide Logistics has built up its contract logistics business over the past year with select clients and is now pursuing this segment as a strategic target area.

“We’ve always done it, but it was a secondary product that we handled in conjunction with clients’ air or ocean freight business. Now we’ve put in focus, structure and some expertise. In a few cases, it’s become the lead product,” reported Rick Lee, global VP of contract logistics.

Several factors have converged to drive interest in contracting-out logistics work, notably warehousing. E-commerce platforms need flexible and scalable solutions and are usually not eager to make heavy infrastructure investments, noted Insight Partners, adding that the rise of same-day or next-day delivery expectations is increasing pressure to leverage automation, advanced tracking technologies and data analytics.

Future Market Insights points to the rising complexity of global supply chains, growing e-commerce penetration and increased demand for end-to-end solutions. Interest in sustainable logistics solutions and compliance with regulatory frameworks are secondary factors, its analysts pointed out.

Mr Lee remarked that tariffs and unstable market conditions had also fuelled growing interest, with much of the demand focused on warehousing.

“Contract logistics is really a supply chain solution; usually there is a warehouse in the middle. This is often the main portion of the conversation,” he said.

Mr Imbriani emphasised that warehousing in this context meant more than simple storage – it frequently involved elements like order fulfilment or pick and pack and, increasingly, automation.

While warehousing makes up the lion’s share of contract logistics engagements for Team and AIT, the former has also seen growth in exclusive trucking services for clients, which usually involve a small number of trucks. This means clients don’t have to carry assets on their books, and they don’t have to employ drivers, which are hard to find and more expensive, Mr Imbriani said.

In contrast, pure logistics services are not in much demand, he reported. Clients may use forwarders to manage specific traffic lanes for them, but this is usually not done with fixed contracts, he said.

“We now sign more agreements than ever before in logistics, but they are on terms and conditions, liability and compliance, not for services,” he added.

Naturally AIT wants to extend work with clients beyond warehousing contracts. Some are open to this, while others are set in their ways. Often customer satisfaction with the warehousing work leads to questions about AIT’s ability to provide other solutions, said Mr Lee.

While cargo owners are more focused on outsourcing warehousing, interest in having dedicated forwarder staff working in their offices is low, he added. To him this is part of a natural transition from insourcing to outsourcing.

And duration of contracts depends on the individual situation.

“If we can accommodate a new customer’s business in our existing facilities, it can be as short as two years. If we need to add space, it would be a minimum of three to five years,” explained Mr Imbriani.

AIT typically has one-year contracts, served in its multi-client facilities, but agreements for these can be as short as six months, depending on the circumstances, Mr Lee said.

“If we’re looking at a 500,000sq ft facility, I don’t think I could talk a landlord into a two-year deal. It’s got to be commercially viable,” he continued. Ultimately, finding a solution for a customer is a process, a ‘cookie-cutter approach’ would not work, he stressed.

Compared to forwarding, which is prone to volatile pricing, contract logistics typically offers more stable financial conditions, as the costs of labour and real estate tend to change in narrower bands.