Singapore logistics sector expects steady growth as hub role strengthens
As companies reconfigure supply chains and consumer demand stays strong, logistics volumes in the Republic are rising
SINGAPORE’S logistics sector is on track for steady growth in the coming months, bolstered by its role as a key transhipment hub in South-east Asia, and supported by the economic resilience of the Republic and its trade partners.
In the latest quarterly OCBC SME Index – which tracks the performance of small and medium-sized enterprises (SMEs) in Singapore – the transport and logistics industry’s score rose to 51.2 in the third quarter, up from 50.6 in the second.
This reflected a similar increase in the overall index, to 50.8 from 50.2 in Q2. A score above 50 indicates growth compared with a year ago, while a score below 50 signals a decline.
Within transport and logistics, the rise was largely driven by strong performance in the logistics services sub-sector.
Its reading rose to 52.6 in Q3 from 51.0 in the previous quarter, with demand for logistics services rising due to the need to transport increased manufacturing and factory output.
For Dave Ng, chairman of the Singapore Logistics Association, the logistics industry’s “robust performance” over the past three months has been driven by broader economic health.
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“The ongoing global economic recovery has gained steady momentum, with trade volumes across various sectors exhibiting positive growth,” Ng said.
But even global uncertainties can drive growth for the sector.
Warren Saw, managing director of enterprise banking industries at OCBC, attributed the transport and logistics industry’s recent growth partly to supply chain diversions and early shipments, prompted by new tariffs on Chinese goods and potential US port strikes.
“These resulted in higher freight rates and contributed to increased container throughput activities at (the) Singapore port,” Saw explained.
Beyond specific events, Singapore is capitalising on the broader trend of companies reconfiguring supply chains to mitigate geopolitical risks.
Multinational companies are attracted by Singapore’s extensive network of free trade agreements and partnerships with neighbouring countries, said Ng.
He noted that such firms are establishing “dual hubs” within the region: optimising costs by having production sites in lower-cost countries, while leveraging Singapore’s advanced logistics infrastructure by having logistics facilities in the Republic.
Good times ahead
Looking forward, Saw and Ng highlighted the Ministry of Trade and Industry’s (MTI) revised full-year growth forecast for 2024 as reason for optimism.
In August, MTI narrowed its full-year growth forecast range to 2 to 3 per cent, the higher end of an earlier range of 1 to 3 per cent.
The resilience of the Singapore economy supports a positive outlook for the industry, noted Saw.
Ng added: “Singapore’s major trading partners are performing in line with expectations, and consumer spending is likely to continue its recovery, influenced by adjustments in US monetary policy.”
Granted, not all has been smooth sailing. The US port strikes boosted Q2 shipping, as companies front-loaded shipments ahead of the traditional festive season – but this meant a corresponding slowdown later.
Logistics firm JGL Worldwide saw a fall in transaction volumes for its Singapore operations between September and October, due to the earlier wave of front-loaded shipments, noted chief executive officer Daniel Lim.
But he expects volumes to recover in November and December, driven by the resumption of trade activities following China’s Golden Week in October, as well as the “usual year-end push” as businesses close their financial year.
Golden Week is one of China’s largest holiday periods. Business closures during this time are followed by a surge in logistics activity, as operations resume and companies clear backlogs.
As for the risk of US port strikes resuming in January, Lim is not too concerned. JGL has seen no signs of customers front-loading shipments in the fourth quarter, and the risk of a second US port strike “is low” as broad agreements on wage increases have been reached, he said.
For Q1 2025, transaction volumes are expected to follow typical seasonal patterns and slow from the previous quarter, partly due to businesses closing for the Chinese New Year holidays, Lim added.
Challenges ahead
Though the growth outlook for Singapore’s logistics sector is promising, there are still challenges. Chief among them are labour shortages and rising costs, particularly for skilled heavy-vehicle drivers.
“As a result, logistics companies would incur additional effort and cost to manage these disruptions,” Saw pointed out.
Ng noted that, meanwhile, rising bank interest rates are adding pressure on smaller companies, driving up operational costs and pushing some to the brink of closure.
Ongoing conflicts in Ukraine and the Middle East have also disrupted ocean shipping, reducing service reliability, he added. “Consequently, logistics companies are incurring additional efforts and costs to manage these irregularities.”
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