Li & Fung results indicate the possible return of a peak season


Much of the logistics sector appears to remain in the doldrums, with sea and air freight seeing little or no growth in volume whilst freight rates on the Shanghai freight rate index continues to track sideways. Only China-Europe prices have shown much life over the past few weeks and that is because they have been so low over the past six months. Yet, as mentioned in earlier Ti briefs, there are indications that volumes may return to some modest growth over the next couple of quarters, possibly seeing the emergence of a peak season.


The most recent indicator is from the trading and distribution business Li & Fung. It is a key provider on the retail supply chain, sourcing over US$20bn of clothing, toys, furniture and other consumer durables to US consumers in particular. The Hong Kong-based company operates a diversified supply chain with almost half of its production sourced outside China in countries such as Bangladesh and Vietnam.  Li & Fung’s interim results issued yesterday (13th August) saw turnover remain flat, although it described order-books as “full” and margins increased 0.3% to 8.9% in its core trading division. Crucially, the flatness of sales hid a certain degree of variability, with European demand falling by 7%, whilst other regions grew by 15%. Li & Fung expressed some optimism for the near-term, observing that the US showed “signs of recovery, although we remain cautious”.


As a reflection of this caution, Li & Fung’s Chairman William K Fung, observed that “retailers are now placing orders with shorter lead times and pushing deliveries closer to their seasons”. Fung believes that there is likely to be an increased seasonality with demand accelerating toward the end of the year.

Such a result suggests both that the steepness of the ‘peak-season’ may be at a higher gradient than in previous years, whilst the modest recovery seen in developed markets such as the US, but also Northern Europe and non-Euro economies such as the UK, will feed through to greater demand for logistics services exposed to global trade.