Plunkett Research Discovers 10 Transportation, Supply Chain and Logistics Industry Trends to Watch
Houston, TX. June 2, 2009
Transportation is one of the world’s largest industries. Its sectors range from taxis to trucks to airplanes, trains, ships, barges, pipelines, warehouses and logistics services. Here, Plunkett Research reports 10 major trends that will impact the transportation, supply chain and logistics industry.
“In total, during 2008, the U.S. transportation industry, in both for-hire and not for-hire sectors, was about $1.8 trillion,” said Jack Plunkett, CEO and Editor of Plunkett Research. “Transportation, in its many facets and sectors, directly employs about 4.5 million Americans. At a bit more than 10% of America’s economic activity, transportation is remarkably efficient, considering the fact that it is a vital service to every other sector of the economy.”
Plunkett’s ten Transportation industry trends to watch for:
1) Transportation, Supply Chain and Logistics Companies Fuel Globalization - The transportation, supply chain and logistics industry has gone global, along with just about every other industry sector. These transportation and logistics companies, however, hold a unique position because they are the very entities that make globalization possible. This industry is made up of companies that supply the systems and software, run the warehouses, provide the consulting and operate the airplanes, boats, trucks and trains that move raw materials, finished goods, packages, documents and people throughout the world. Offshoring has been one of the biggest contributors to international commerce in recent years. With the need to ship massive amounts of goods across long distances came the need to have vast supply chains monitored, organized and controlled. This led to the advent of logistics services companies, which specialize in handling goods on the way to market.
2) Competition Between Couriers Heats Up - The parcel delivery business is one of the most competitive in the world, with a small handful of companies battling for market share. In the U.S., United Parcel Service (UPS) ruled supreme in ground delivery services, while FedEx was the undisputed leader in express air package delivery. However, when UPS began offering overnight air services and FedEx started its ground delivery business, the battle for market share commenced in earnest. Internationally, UPS and FedEx are confronted with a number of leading foreign companies, first and foremost being DHL Worldwide Express. The stiff competition has had its rewards. Rival companies have pushed each other to new heights of efficiency and reliability. Both UPS and FedEx have an annual IT budget of more than $1.5 billion. The only entity that has really suffered has been the United States Postal Service, which has seen its portion of the parcel shipping market wane considerably; despite attempts to increase delivery times and improve reliability.
3) Freight Trains Use Logistics Technology to Cut Costs - Until recently, trains slowly lost out to trucks and airplanes, which offer much more flexible, versatile and quicker modes of transport. Freight trains enjoyed a significant upsurge through 2007; then in 2008, freight volumes slipped significantly. Logistics analysis has enabled rail companies to ditch their century-old business practices and revise them for the modern day. Among these are the formerly unreliable schedules of trains caused by waiting for full loads (100 or more cars). In addition, railways are increasing the use of advanced information technology. Radio frequency identification (RFID) tags have made a major break into rail systems. Other installations include systems to help trains run more smoothly and fuel-efficiently, including computerized power control, GPS mapping of train routes and remote-control locomotives. All of these technical innovations are helping trains keep on schedule, use less fuel and prevent delays and accidents.
4) China Makes Huge Rail, Road & Airport Upgrades - Some of the most ambitious transportation infrastructure investments the world has ever seen are taking place in China, where about 9% of GDP is invested annually in infrastructure of all types. Transportation use of all types is soaring in China, including the movement of passengers and freight by air, rail and highway. In November 2008, the Chinese government unveiled a $586 billion economic stimulus package that is largely earmarked for highways, railroads and airports. Major projects include a $17.6 billion passenger rail line in northwest china; a $22 billion network of freight rail lines in north central China; and a $24 billion high-speed passenger railroad from Beijing to Guangzhou. On the roads, 2008 saw the completion of the world’s longest sea-spanning bridge. The six-lane, 22.4-mile bridge crosses Hangzhou Bay and significantly cuts the travel time between Ningbo and Shanghai, two of China’s busiest ports. Roads are a major focus of the 2008 stimulus package, with plans to increase total highway miles to 53,000 by 2020 (compared to the 47,000-mile interstate highway system in the U.S.). As for air travelers, a $3.8 billion expansion of the Beijing Capital International Airport officially opened in early 2008, well in time for the Summer Olympics.
5) Global Airlines Face Daunting Challenges - The commercial airline industry has always been particularly vulnerable to economic and political changes. In 2008, the International Air Transport Association, which represents 230 airlines, reported combined losses among global airlines of approximately $8 billion. That same year, a number of carriers ceased operations including ATA, Aloha Airlines and ExpressJet. Continental announced plans to cut 3,000 jobs (about 6.5% of its workforce), reduce capacity by 11% and reduce its fleet by 67 planes in mid-2008. During the last half of 2008, American Airlines planned to cut domestic capacity by about 12%, United planned domestic cuts of about 16%, and Delta and Continental likewise announced cuts, all to take place after the busy summer flying season. These budget cuts will continue through 2009. Meanwhile, United, Delta, American and US Airways, among others, are now charging passengers for services that were once complimentary. By March 2009, airlines were facing such slow demand that they once again found themselves in fare wars, slashing ticket prices aggressively.
6) New Technologies Show Promise for Port and Airport Security - U.S. and international transportation hubs continue their efforts to keep passengers and freight safe and security costs under control. To achieve this, airports railway stations and ports are developing new technologies and strategies. Security measures being implemented include background checks of airport baggage handlers; more training for security personnel; and a registered traveler identification program, which allows traveler’s (who pay $128 per year and agree to an iris scan and being fingerprinted) to pass through an exclusive security line. Other hot issues are port security and air cargo safety. Shortly after the 9/11 attacks, the U.S. government instituted a program in which all shippers sending goods to U.S. ports must deliver an electronic manifest of every container’s contents to the U.S. Customs Service 24 hours before being loaded on a ship in a foreign port. Cargos, shippers or handlers who are deemed “high risk” by the Customs Service have their associated containers x-rayed or physically searched before loading, which works out to be between 5% and 10% of all containers to arrive at U.S. ports. Another example of cargo handling security measures is a program launched by the San Francisco Airport which has a goal of screening 95% of the cargo placed on passenger planes leaving that airport, as well as utilizing existing bomb detection technology.
7) India’s Transportation Infrastructure Needs Billions of Dollars in Construction - India, as one of the world’s fastest-growing economies, is evolving from an undeveloped, agricultural economy into a more complex economy that includes booming sectors in services, manufacturing and construction. Economic growth has been so rapid that transportation of all types is woefully undeveloped. Unfortunately, India has been investing only about 4% of GDP in infrastructure of all types, according to a study of 2005 budgets, compared to about 9% in the rival nation of China. Some progress in transportation has been achieved, most notably the $12 billion Golden Quadrilateral, a multi-lane highway connecting major cities that span nearly 3,000 miles, including Mumbai, Delhi and Chennai. Airport construction currently has a high priority, including new or expanded airports in Hyderabad, Bangalore and elsewhere, either under planning or under construction. Public-private partnerships such as toll roads, better long-range planning by government agencies and aggressive marketing by suppliers such as the locomotive manufacturing division of GE will slowly improve things. Over the long haul, there are tremendous opportunities in India for equipment suppliers and engineering firms able to fulfill India’s transportation needs. For example, international engineering and project management firm Parsons Brinkerhoff, as well as Korean equipment manufacturer Rotem, are involved in a major subway project in New Delhi, and several foreign firms have been included in the Golden Quadrilateral highway project.
8) Car and Bike Sharing Programs Proliferate - In 2000, a car sharing business called Zipcar (www.zipcar.com) was founded that offers drivers inexpensive alternatives to driving their own cars. For a nominal fee, Zipcar members are issued smart cards that allow them to unlock Zipcar vehicles with a wave of the card over the windshield. As of 2009, there were 250,000 members driving 5,500 Zipcars available in 28 North American states and in London in the U.K. Meanwhile, General Motors-sponsored researchers at the Massachusetts Institute of Technology (MIT) are creating a prototype called the CityCar that operates very much like luggage carts found at airports and train stations. When parked, CityCars fold to about half their size and stack together, with four stacked cars capable of fitting into a single parking space. Drivers would swipe a credit card in a reader to release a stacked car and restack it at another rack near the driver’s destination. In 2007, French advertising firm JCDecaux launched a bicycle-sharing program which offered the use of bikes called Vélíbs at its 1,450 rental stations throughout Paris. Individuals create an account using their credit cards which includes permission for the company to charge about $240 if a bike is not returned. JCDecaux turns rider fees over to the city of Paris, but generates additional income through advertising. Initially the program was a success with approximately 42 million rentals in the first 18 months, but by early 2009, about half of the 15,000 Vélíbs in the original fleet had been stolen and even more had been vandalized.
9) Toll Roads Solve Highway Needs in the U.S., Australia, the U.K. and Elsewhere - A major investment bank, Macquarie Bank, Ltd., based in Australia, is leading the field in investment and development of major toll roads. With stakes in projects in Virginia, Illinois, Toronto, Sydney, Lisbon and elsewhere, Macquarie has found the right formula to assist local governments in their need to develop toll roads while establishing excellent long-term profit potential for the bank. The economic crises may have an adverse affect on toll roads. U.S. highway miles traveled were down 3.6% in 2008. Also, as people look for ways to spend less, taking alternative, free routes to toll roads may become more common. Falling tolls will adversely impact municipal, state and federal programs supported by those funds. In China, as 2008 began, 53,600 kilometers of toll roads had been completed, creating a vital multi-lane linkup between the nation’s major industrial cities and its ports.
10) Wireless Information Systems Surge Ahead in Vehicles: Telematics, ITS and More - Using cellular telephone technology, fee-based telematics networks, which allow drivers to check e-mail and online services for weather, stock quotes or driving directions merely by voicing a command, are already in place. GM’s OnStar is a leading telematics system. Such systems offer varying degrees of networked services linking cars to external systems such as global positioning systems (GPS). The external systems monitor the position of each vehicle and can perform tasks such as unlocking doors or switching off lights remotely upon request. They also dispatch service vehicles or medical aid when necessary. More recent innovations include ultrasonic rear sensors that warn drivers when they are about to back into something, and voice-activated phone dialing and navigation plotting. The use of wireless telematics and ITS will be vital to tomorrow’s “intelligent” automobiles and trucks.
Additional information is available in “Plunkett’s Transportation, Supply Chain & Logistics Industry Almanac 2009”, as well as on our web site, www.PlunkettResearch.com.
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