Inadequate national infrastructure, regulatory uncertainty and digital threats are the top risks concerning transport providers in North America this year, according to Willis Towers Watson’s Transportation Risk Index 2016.
Infrastructure tops risks for all sectors
Consolidated feedback from senior executives across all three modes of transport – land, sea and air – found the limitations of the continent’s infrastructure to be the biggest risk faced by their businesses; the threat was felt most acutely within the aviation sector.
The result may not come as a total surprise to companies in the U.S., given the reported shortfall in transport-related infrastructure investment the country has witnessed for the past decade. By one 2016 account, from the consultants Arcadis, the investment gap is about U.S.$86.5bn a year.
It is an environment that creates plenty of opportunity for private-sector investors, who traditionally have the ability to deliver projects faster than their state counterparts. For executives in the air-transport sector, who rated ‘overdependence on infrastructure’ as the No. 2 risk to their businesses, change can’t come fast enough, especially with regard to air-traffic control (ATC).
Airlines, which last week agreed to carbon offsets that could add as much as US$20 billion to their global operating costs from 2021, would applaud any advance in the efficiency of the continent’s ATC systems, to improve routes, lower fuel bills and lessen their collective carbon footprint.
But as governments continue to bear the lion’s share of the cost for ATC upgrades – while receiving fewer direct benefits — change is likely to remain slow, at least too slow for the airlines.
Top airline risk: competition and anti-trust laws
Executives in the wider air-transport sector perceive the competition and anti-trust laws that govern mergers and acquisitions to be the top risk to their businesses.
Perhaps due to the promise of private-sector investment and the government’s recent passing of the 5-year, U.S.$305bn Fixing America’s Surface Transportation bill, land-transport providers are comparatively less worried about infrastructure risks. Like their air-transport counterparts, they view the actions of regulators with greater concern.
Top road and rail risk: emerging regulation
Executives in the land sector, comprising road and rail-transport companies, see emerging regulation as their top risk. In fact, it is perceived to be the highest-rated individual risk across all modes of transport. Rail companies in particular face a raft of new regulations that could make business more difficult.
On the passenger side, in the view of some operators, state insistence that all high-speed trains must be built in the U.S. is limiting financing opportunities for the promising hi-tech sector; the U.S. currently does not manufacture high-speed trains.
Hauliers, too, are facing new regulations aimed at reducing their emissions and others restricting their working hours. In August, U.S. regulators announced new standards aimed at improving by up to 25% the energy efficiency of the country’s medium- and heavy-duty trucks in the next decade.
The government says the new rules will save US$170 billion in fuel costs over the life of the vehicles, but it will add US$27bn in upfront costs for an industry that is constantly seeing its profit margins squeezed.
In a bid to reduce trucking accidents, from December next year all hauliers will be required to use electronic logging devices to ensure they are not exceeding regulations limiting the hours they can work.
The U.S. Department of Transportation (DoT) estimates the devices will prevent about 2,000 accidents a year and cost trucking operators around US$1bn, money the DoT says the hauliers will recover through reduced paperwork.
Top maritime risk: cyber risk
Maritime transport providers also rate emerging regulation among their top 10 risks. But, for them, the main risks come from cyberspace. The increased security threats from cyber and data privacy breaches are seen as the sector’s primary risk, with the potential failure of critical IT systems following closely at No. 2.
Tellingly, the maritime transport sector rated the risks associated with a dependence on third-party suppliers as the sector’s No. 5 risk, a threat whose potential impact was starkly illustrated by the fallout from the bankruptcy of Hanjin Shipping.
Guest blogger Peter Austen is CEO of Willis Towers Watson North America Transportation