The persistent weakness in the Latin American economy has turned the spotlight on partnerships in the transportation sector and is fueling concerns about 3rd-party risk and emerging competition.
According to Willis Towers Watson’s Transportation Risk Index 2016, the region’s most senior transportation executives rate the resilience of the digital supply chain as the primary risk facing their collective businesses, across land, sea and air.
After three straight quarters of economic retraction across the continent, executives in Latin America are comparatively more concerned about the overall risk environment than are their regional counterparts; only their counterparts in continental Europe-Central Asia are more worried about the risk environment than they are.
Cyber risk paramount
The average annual spend on global cyber security for the aviation and defence sector is projected to reach US$61.85bn by 2020, with a compound annual growth rate (CAGR) of 9.34% until then, according to global research firm Marketsandmarkets.
Latin America’s cyber spending is projected to have the highest annual growth rate of any region during that period, as the rapidly expanding use of the Internet drives up the number of cyber-attacks in countries such as Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru and Venezuela.
Some of these countries have passed legislation to counter this threat and built fledgling cyber defence systems. But the region is still seen as vulnerable. A report co-published by the Organization of American States earlier this year said most countries in the region lacked “a cyber-security strategy or plans for protecting critical infrastructure” such as ports, airports and rail networks.
This threat was borne out in our findings, where executives from all three modes of transportation perceived a lack of resilience in the digital supply chain to be among their top six risks; for road and rail executives, it was their top-rated risk, while their maritime counterparts ranked it at No. 3. The increased security threats from cyber and data-privacy breaches ranked No. 4 when results were aggregated.
Top aviation risk: emerging competition
Although executives from the aviation sector rated two ‘digital’ risks among their top eight, regional economics had them more concerned: they collectively viewed the threat from emerging competition as their primary threat, while the impact of failing economies on their asset strategies ranked No. 2.
The transportation industry in Latin America has undergone consolidation for the past decade, particularly in the aviation sector where several national flag and big-budget carriers have pursued mergers and acquisitions in search of growth.
Top maritime risk: regulation
However, it was executives from the maritime sector that proved most sensitive to the laws and anti-competition scrutiny surrounding M&A activity, rating it the top individual risk facing their sector. In fact, of all the individual risks rated, it returned the highest single score from any sector.
Although they are proven ways to acquire market share and expand a company’s geographical presence, partnerships and alliances also add risk, in that they expose both sides to the weaknesses of the other. Across any supply chain – whether physical or digital — more partners = more risk.
Third-party suppliers in the top 3 risks
During a recession when profit margins are traditionally squeezed, it is the hidden partners that often cause the most disruption, as illustrated by the recent collapse of Korea’s Hanjin Shipping. Many beneficial cargo owners, who had no contractual relationship with Hanjin, still had their cargo held hostage when the line declared bankruptcy last month.
Clearly, transportation companies in Latin America and elsewhere are increasingly becoming known for the company they keep.
We found an overdependence on third-party suppliers is the No. 3 risk across all modes of transportation in the region.
The Willis Towers Watson Transportation Risk Index polled 350 ‘C-Suite’ executives from around the world, evenly split between the five regions.
Tom Messer, Regional Leader Latin America and Caribbean, Aerospace