News / High fuel prices making outlook for logistics demand uncertain

The prospect of fuel prices remaining high for some time is making the demand outlook for freight forwarding and logistics services uncertain, according to an industry analyst.

“In our base case scenario, oil prices will end the year over 30%  higher than for FY2025,” ING’s senior sector economist, transport & logistics, Rico Luman, told The Loadstar.

“Logistics companies have already been in close conversation with their shipper customers with regard to the impact of higher fuel costs and the introduction of surcharges which will very likely be passed on to the end consumer.

“But it could also affect the business performance of LSPs and forwarders to a certain extent in Q2 and beyond, as the broader consequences of elevated fuel prices become apparent. A rise in inflation, reduced consumer purchasing power, and lower economic growth are all negative factors when it comes to demand for logistics services.

“The mood among shippers is changing, and not for the better. All-in-all, it doesn’t look great for freight volumes while costs are going up.”

But what may provide some comfort for LSPs and forwarders, and relieve margin pressure, is the squeeze in both ocean and air freight capacity, noted Mr Luman.

“The resumption of ocean shipping through the Red Sea has been pushed back, maybe even to the end of the year, meaning longer journey times around Africa will continue, thus absorbing capacity. Furthermore, the Middle East crisis and knock-on congestion is also taking up capacity. This is holding up rates and preventing them from sinking further. The crisis has also exerted capacity pressure on air freight, leading to rate increases, although some industry players may have run into significant extra costs that they have had to work around.”

He concluded: “The next few months are really difficult to call. The market for ocean and air logistics could turn in either a positive or a negative direction.”

In a brief review of the first quarter, Mr Luman noted that the corresponding period last year had been unusually strong, pushed by heavy front-loading ahead of US import tariffs and ‘Liberation Day’.

“In Q1 26,  global trade held up better than expected, while the Middle East crisis added to the disruption in supply chains and the restructuring of tradelanes, which are generally favourable factors when it comes to demand for logistics services. The Hormuz blockade sent fuel prices soaring, but freight rates also rebounded to a degree.”

Henri Le Gouis, EVP, global freight forwarding, at French logistics group Geodis, said the Middle East crisis had only impacted his company’s March results, and the full effect should only be visible in Q2.

“For the moment we have to convince our customers to pay the fuel surcharges, which is not easy in the current economic context. In air freight, we expect a sharp increase in rates but slowing demand for ocean freight, which could reduce the volumes of FMCGs shipped.”

Mr Le Gouis said that since Covid, the group had been well-prepared to manage severe disruptions in global supply chains, but added: “Nevertheless, the strikes on Jebel Ali and the significant impact on capacity and services at the airports of Dubai, Abu Dhabi and Doha, were a serious test. At this stage, what has come out of this crisis is an inflated cost of energy, resulting in sharp increases in fuel prices. In air freight, we will have to live for at least a further few months with capacity under constraint, especially on daily flights.

“In ocean freight, the closing of the Strait of Hormuz has shown that it is very difficult to put in place reliable and cost-effective alternative solutions.”

He concluded: “When the strait re-opens, the safety conditions and insurance premiums related to it will deeply affect the cost of ocean freight services in the Gulf. Also, the sustained pressure on oil prices will penalise the entire transport industry for the months to come.”

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