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Sector analysis: Transport sector

The Transport & Logistics sector is seeing some recovery, but remains under pressure due to several challenges
In 2024 and 2025, the Transport & Logistics sector can look forward to some recovery. (Cautiously) rising industrial production and increasing consumer spending are the main drivers for this. The fall in interest rates is also good news for this so capital-intensive sector. Despite better prospects, it is too early to rejoice; solid structural challenges remain. Consider environmental regulations and high costs (such as rising wages).

This article contains:

Key insights

  • Industrial production and consumer spending boost recovery.
  • Stricter environmental regulations and high costs remain challenges.
  • Geopolitical risks create ongoing uncertainty.

European perspective

The expected recovery in the sector is in line with general economic trends. The global economic outlook for the coming years has improved a fraction, according to our recently released Global Economic Outlook 2024-26. We assume stable, but limited growth of 2.8% on average until 2026. In the Eurozone, growth will not exceed +0.8% in 2024. For the next two years, we assume +1.4%. However, inflationary pressures are clearly diminishing.

The big question is how Germany will perform. When will the country come out of the prolonged recession? The German economy has a major impact on the Benelux countries. German companies are facing declining competitiveness, not only in international markets, but also within Europe. Especially the automotive industry is in deep trouble. For 2025, we expect modest growth for Germany of +0.7% in 2025 and then +1.1% in 2026.

Geopolitical risks

The economy, and certainly the Transport & Logistics sector, remains vulnerable due to various geopolitical risks, such as the ongoing war in Ukraine and Gaza and tensions in the South China Sea. In addition, the elections in the U.S. are creating uncertainty about U.S. trade policy and possible protectionist measures.

Sub-sectors

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Road transport  

Road transport will make only limited progress in the coming years. The profitability of many transportation companies is fragile. Margins are minimal. Against lower fuel costs, a variety of cost items continue to rise. Most prominent are higher labor costs. Furthermore, road freight transport is experiencing increasing restrictions due to the introduction of environmental zones, especially in urban areas in Europe. That puts pressure on transport companies to switch to cleaner vehicles, such as electric or hybrid trucks but that comes at a significant cost.

The shortage of professional drivers is also a problem that will only get worse. According to the International Road Transport Union (IRU), the shortage will reach 745,000 drivers in all European Union member states by 2028. In the long run, the aging workforce will add to this. How will the industry replace current drivers who will soon retire? New generations are increasingly choosing different types of work, especially in developed countries.

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Transportation by water

After a difficult 2023, we see clear recovery in maritime and inland shipping. Major ports like Antwerp and Rotterdam saw transshipments stabilize and grow after the 2023 downturn. The rising demand for raw materials led to a clear increase in container handling in particular.

On the positive side, shipping companies benefit from cheaper bunker fuel versus expensive diesel for road transport and kerosene for aviation. The growing capacity of container ships also makes sea transport attractive. Today's largest ships can carry up to 24,000 containers. The huge volumes of goods that ocean vessels can accommodate translates into efficiency and economies of scale. That explains why 85% of world trade is transported by sea, especially intercontinental. It amounts to some 11 billion tons of goods. This figure is expected to triple by 2050.

Although maritime transport currently accounts for about 3% of global greenhouse gas emissions, this share could rise to 17% by mid-century if no action is taken now. Shipowners know that decarbonization is not only a challenge, but also a market opportunity for those who lead the way in greening their fleets. To date, 13 of the world's 30 largest shipping companies have already set a net-zero target for 2040-2060.  The industry will need to invest a minimum of USD 23 billion a year to reach the climate goals.

Aging fleet: In 2023, the global fleet consisted of about 105,500 ships of 100 gross tons and above (an increase of only +3.6% y/y). What is worrisome is the rate at which the world fleet is aging and declining in value. Last year, commercial ships had an average age of 22.2 years (25-30 years is the technical life span). Compared to a decade ago, the global fleet has aged an average of two years, with more than half of the fleet now over 15 years old. The least developed countries have the oldest fleets, but also have the least resources to accelerate the greening of this sector.

Industry capacity is expected to grow in 2024-2026 as shipyards around the world continue to operate at full capacity to accelerate short-term deliveries. Some of the new ships are intended to replace old/phased-out vessels.

Volatility of shipping prices: Climate change (e.g. low water levels due to droughts, such as in the Panama Canal) and geopolitical tensions ("detours" such as at Suez Canal and Strait of Hormuz) have disrupted maritime traffic, thus changing routes, increasing transportation time, increasing fuel costs and changing freight rates. As geopolitical conflicts and climate disasters persist, we can continue to expect a lot of volatility in ocean freight rates.

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Aviation

Air cargo is increasing (again) and demand for airline tickets also continues to grow. World Air Transport Association IATA reported that by mid-2024, nearly 11 percent more people were catching planes. Most of the growth was seen in Asia, but the rest of the world also saw substantial increases in air travel. European airlines recorded a plus of just under 12 percent in mid-2024. On average, planes were 81 percent occupied.

The outlook for 2024 and beyond is positive with an expected profit of USD 30.5 billion for airlines. In addition to more passengers, cargo volumes are also increasing. Air cargo is experiencing a marked recovery. Aviation is benefiting across the board from recovering global trade.

Many airlines are (still) struggling with aircraft and staff shortages. This increases competitive pressure. This explains the wave of consolidation going on in European aviation. Mergers make it possible to use resources more efficiently and maintain market share. With economies of scale, airlines are trying to cope with rising costs such as higher fuel prices and increasing personnel costs.

Key bottlenecks for aviation:

  • higher wages (staff has bargaining power through strikes);
  • higher fuel prices than before the pandemic (representing 30% of total costs)
  • higher land costs (airport fees):
  • the aircraft shortage, which began with supply chain disruptions during the pandemic, has been exacerbated by recent safety problems at Boeing - air traffic control centers in Europe and the U.S. are increasingly struggling with staffing problems.
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Rail transport

In the Benelux, both freight and passenger transport by rail will increase in 2024. After a sharp decline in freight transport last year, the downward trend has been reversed and slight growth has returned.

Public transportation is almost back to pre-corona levels, although travel patterns have changed. Business travel by train is down, while leisure travel has increased.

In addition to the overall economic recovery, the call for sustainability is a major plus for rail transportation. Troublesome for rail companies remains the constant need for investment, both for the development of the rail network and signaling systems and for the purchase of rolling stock. In some regions (especially in Europe), companies receive government subsidies for this purpose to meet capital needs.

We expect increasing environmental awareness to drive passenger rail revenues in the coming years, as people will prefer trains to short-haul flights.

Key challenges for the sector

  1. Stricter environmental regulations
    Stricter environmental regulations: Transportation accounts for about 24% of global CO2 emissions, and road traffic accounts for 3/4 of transportation emissions. We expect international rules to reduce greenhouse gas emissions to become increasingly stringent, which will affect all types of transportation. The aviation and maritime sectors are the most difficult to decarbonize because of the significant investments needed to renew fleets and slow technological progress. Alternative fuels must also become more widely available and cost-effective compared to conventional fuels (for example, renewable jet fuel is 2.5 times more expensive than kerosene).
  2. Role technology
    Whether solving workforce shortages or optimizing supply chains, the role of modern technology is crucial. Consider the application of IoT (Internet of Things), blockchain and advanced analytics to optimize processes, improve efficiency and reduce costs. Thanks to new technologies, parties in supply chains (such as shippers, carriers and forwarders) are increasingly connected, allowing companies to deal with disruptions in the chain more flexibly and efficiently. Faster intervention is therefore possible. Especially in highly competitive markets, this can be a decisive advantage.

    New systems should also address customer requests for transparency and real-time visibility of their shipments.
  3. Cooperation and economies of scale
    From a cost perspective and to meet increasing wishes and requirements of customers and governments, cooperation is increasingly taking place within the sector. Both in the field of transport and logistics. Examples include jointly organizing and purchasing transport, joint use of distribution centers, and collective investment in digital systems and databases.

    In addition to more and more cooperation, we are also seeing economies of scale. By taking over fellow transport companies elsewhere in the world, global services can be organized more directly. Cost efficiency also plays a role in this, of course.

Increasing number of bankruptcies

After previous increases in recent years, the number of bankruptcies will increase again in 2024 and by +11%. This brings Allianz Trade's insolvency index to +13% above the average for 2016-2019 (the pre-corona period). For 2025 and 2026 we foresee a slight recovery. In terms of bankruptcies, Transport & Logistics is among the most sensitive sectors. Due to high costs, margins are constantly under pressure. Very little needs to happen to end up under the red line.

An unpaid invoice or the bankruptcy of an important customer can have serious consequences for a transport company. To prevent companies from running into unpaid invoices, we offer the protection of a trade credit insurance. Business owners can then be sure they will get their invoices paid.

How can transportation companies protect themselves?

For many transportation companies, the blow of unpaid invoices can hit hard. This can be mitigated with a trade credit insurance. Allianz Trade has a solution for every type of company. Whether an invoice is paid or not is no longer a worry, companies are sure of their money with our trade credit insurance. This provides security and removes anxiety. We take over the debtor risk from the company. Don't customers pay? Then Allianz Trade indemnifies the affected company. In addition, we offer companies who take out a trade credit insurance with us information about the creditworthiness of their (potential) customers. Daily, we analyze the financial situation of customers and prospects.