Nearshoring trend set to transform European logistics

Nearshoring is transforming the outlook for the logistics sector, delegates heard at Real Asset Media’s Trends 2022: The European Logistics Real Estate Census 2022 presentation, that took place yesterday at Savills’ headquarters in London and online on the REALX.Global platform.

“There’s only anecdotal evidence for the death of globalisation, but we’re certainly seeing a decoupling between logistics demand, which is strong, and trade growth, which is modest,” said Oliver Salmon, director, global capital markets in world research, Savills. “This provides optimism for markets that are focused on nearshoring.”

The good news is that supply chains pressures have been easing in the last few months and there are less transport bottlenecks.  

“The accumulation of inventories, especially in G7 countries, is a big theme,” said Salmon. “It provides a buffer against future obstructions, so supply chain issues should continue to ease, regardless of what the future may hold.”

There are multiple drivers behind the nearshoring trend. One is the rise in labour costs in traditional offshoring in places: in China, for example, they have increased by 250% since the country joined the WTO. Another issue is that one quarter of all trade is conducted with countries described as high-risk.

The environmental aspect is also in the mix. “International trade accounts for 20-30% of global carbon emissions,” said Salmon. “Offshoring is incompatible with net zero targets.”

All these factors have led to a big change in the destinations seen as attractive, benefitting stable, developed countries with environmental protections in place.

Global warehousing costs continue to rise, broadly in line with inflation, but with marked differences across regions and countries.

London leads the world rankings, followed by Hong Kong, Tokyo and Dubai. In Europe a notable development has been the rise in costs in areas like Yorkshire in the UK or in cities like Dublin, Paris, Barcelona and Berlin.  Prague has done particularly well, benefitting from its location but also from its low labour costs. 

Global economic outlook bleak

Outside the logistics sector things do not look good. The global economic outlook is bleak: inflation keeps going up, exacerbated by the energy supply crisis, and interest rates will keep rising as central banks tighten monetary policy. 

Growth is slowing down this year and is forecast to shrink even further in 2023. “After the inflation shock and the interest rate shock, there’s the potential for an economic growth shock over the next 12-18 months,” Salmon said. 

Retail sales have been slowing as incomes are being squeezed. European consumers are struggling with the increase in the cost of living and are extremely pessimistic on the economic outlook.

“We’re seeing a collapse in consumer confidence across the world below levels seen during the pandemic and even during the great financial crisis,” said Salmon.  

E-commerce is returning to pre-Covid trends and has fallen back from the levels seen at the height of the pandemic, especially during lockdowns. “We’ve seen a strong correlation between penetration rates and restrictions on mobility,” said Salmon. “But segments that are more suited to online shopping, particularly electronics and clothing, will continue to do well.”