How will transportation execs navigate complex operating models in an interconnected world?

In recent decades, globalisation has opened a wider path to corporate growth while increasing organizational complexity. Supply chains and the transportation networks required to serve them have been stretched across geographical and political borders, driving greater interdependency between companies. This increasing connectivity of global supply chains – both physical and digital – is exposing transportation companies to the cascading consequences of risk.

In this environment it is perhaps unsurprising that senior executives from air, land and sea transportation rank “dependence on third-party suppliers” as a top-10 risk facing their business according to our Transportation Risk Index. A combination of geopolitical, technological and economic factors is likely to conspire this year to complicate operations for transportation companies and add to executive insecurity about current business models.

Geopolitical complications

2017 is set to be another unpredictable year in global politics as nationalist, populist and unilateralist forces demand an overhaul of trade and labour markets. As a result, transportation companies will have to reassess their supply chains and long-term investment strategies.

A rise of nationalist sentiment in Europe and the United States is expected to contract Western supply chains as organisations come under pressure to manufacture and hire locally; rising production costs in traditional Asian export centres could be seen to support that rationale.

Aside from its impact on supply chains, any rise in protectionism that fortifies border control and reduces the efficient movement of goods and skills will make transportation executives more wary about a retraction in trade and the size of the available pool for skilled and unskilled labour.

In the U.K., labour fears will have been piqued by Brexit-driven uncert­ainty about whether British and E.U. expatriates will be allowed to remain in the countries where they currently work. If the answer proves to be ‘no’, not only will the talent pipeline be disrupted, critical executive positions could be vacated and inter-corporate relationships disrupted.

In the U.S., the shifting political landscape continues to cast doubt on the durability of proposed and existing trade agreements. In concert, changes in currency exchange rates and a comparative decline in shipping costs have acted to temporarily weaken the rationale for overseas factories. The expectation is that more U.S. manufacturers will instead opt to invest in auto­mation at their home factories to benefit from added tax incentives and a rela­tive­ly skilled workforce. To some degree, part of any economic impact caused by declining market share or labour competitive­ness can be countered by advances in production technology, particularly in the manufacturing sector. But it has historically been slower to embrace new technology.

Technological complications

Emerging technologies are transforming transportation companies and global supply chains at a rapid pace. 3D printing, drones, robotics, artificial intelligence and the Internet of Things (IoT) are just some of the technological developments making the industry smarter and more efficient. They are also driving further interdependency and reliance on third-party suppliers.

If a greater adoption of technology gathers pace, many product supply lines serving the world’s biggest retail market will become shorter, and lighter

For freight transporters, that level of hyper-connectivity has the potential to bring unpreced­ented levels of supply-chain visibility, especially for in-transit goods. IoT technologies such as radio frequency identification (RFID) and cloud-based global positioning systems are improving aviation by optimising baggage tracking and aircraft maintenance. The IoT is also connecting sensors that detect in-flight cargo hazards; helping to optimise air-traffic routes by monitoring traffic and engine performance; and helping to streamline airline scheduling.

It is thought that increased familiarity with in-house platforms will help companies to gain confidence with the remote options. If a greater adoption of technology – cloud, or otherwise — gathers pace, many product supply lines serving the world’s biggest retail market will become shorter, and lighter. The traditionally asset-intensive transporta­tion companies that serve those sectors will need to become more nimble to limit business-model risks.

None of this, however, is without risk. RFID technology, which is used for every­thing from the identification of the contents of shipping containers to credit cards and passports, has proven vulnerable to cyberattacks. The problem is that too much of the time, vital data is sent without encryption; giving opportunistic hackers access to what should be secured contents and/or strategic information.

As new vulnerabilities emerge, solutions are found. Last year the Massachusetts Institute of Technology produced a RFID chip which it claims is “extremely difficult to hack”. But the cyber arena has proven to be an environment in which criminal intelligence seems to remain one step ahead of the traditional kind. Forecasters predict that by 2020 the black market for fake sensor and video data to enable criminal activity will be worth more than US$5 billion annually.

An interconnected world?

2017 is set to pose significant challenges to the global economy; populism, nationalism and unilateralism will fundamentally alter both trade and labour markets. The trend appears to be one of separation, rather than greater connectivity and dependence. Transportation companies will therefore have the additional task of managing interconnected supply chains in a fragmenting world.

In his keynote address to the World Economic Forum in Davos last month, Chinese president Xi Jinping claimed China would now take the reins of globalisation and promised to ease market access for foreign companies in the country. For those organisations nimble enough to shift towards changing centres of globalisation, there is still opportunity to be found in connectivity.


 

Karen Larbey is the Director of Strategy and Planning for the Transportation Industry at Willis Towers Watson. In her role, Karen works to bring specialist and industry knowledge to develop broader solutions focused around the client’s needs on a global basis. She was formally the Global COO for Aerospace and was responsible for the successful operations.

Categories: Aerospace, Auto, Global Risks, Marine, Political Risk, Supply-Chain Risk | Tags: , ,

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