Economic crisis a threat to logistics growth

Supply chain sector the biggest contributor to the economy, but economic turmoil threatens future growth

While the supply chain sector is one of the largest employers and the biggest contributor to the Australian economy, global economic turmoil remains a threat to future growth.

That’s the findings of what is being described as the first definitive report on the state of the logistics and supply chain industry in Australia, launched by the Logistics Association of Australia (LAA) and consultancy group the Logistics Bureau.

The first annual report comprises research from the Bureau and includes an economic and market update, defines market participants and reviews Australian industry performance.

The report identifies the current credit crisis in the United States as a major threat to growth in the sector, along with rising inflation, the increased cost of fuel and commodities and weaker consumer demand. But the economy should stabilise next year ahead a full recovery in 2010, according to the report.

Costs are largely being kept in check. Labour costs increased by 3.8 percent in 2007-08 according to the research, less than the national average of 4.2 percent.

Industry rents also stabilised in Sydney, Melbourne, northern New South Wales and on the Gold Coast, but limited availability pushed rental prices more than 10 percent higher in Perth, Brisbane and Adelaide.

"While there is still sufficient supply of industrial properties in most regions, some developments may be delayed due to increased construction costs and interest rates," the report states.

Total business inventory has been steadily rising since 1993, largely in manufacturing, retail and wholesale. But improved supply chain management practices have led to a decline in the inventory to sales ratio, according to the report.

The report says transport and logistics functions are increasingly significant in Australia’s economy, with a total product equal to 14.5 percent of GDP. Road transport and services and storage are the major contributors to the industry gross product.

Freight volumes are growing. Japan remains the largest export market, followed by China. Sea dominates international freight but air has a significant share. Road is the major player in domestic freight transport but rail is catching up.

The transport and storage industry is the seventh-largest employing industry in Australia according to the research, with growth anticipated at an average rate of 1.6 percent in the next five years. The storage sector is likely to see the strongest growth.

The country’s total logistics spend equates to 9 percent of GDP, comparable with the logistics spend in Japan, the United States, Europe and Singapore.

The current climate has also seen an increase in mergers and acquisitions among logistics providers in the last 12 months, according to the report.

The LAA says the next supply chain report will focus on service providers, employment and training and the regulatory environment.

"We are delighted to be working with Logistics Bureau in the production of this report," says LAA President Brad Harrison, "which is the first in a series that will provide regular annual updates on the state of the supply chain and logistics industry."

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