LONDON--(BUSINESS WIRE)--Rapid developments in technology are transforming the outlook for the transport sector and will provide the best investment opportunities for the sector, according to the eighth The way ahead Transport survey from global law firm Norton Rose Fulbright.
Closer integration with other forms of transport to develop bespoke end-to-end passenger journeys, or tailored supply chains, is viewed as the infrastructure investment that would benefit the rail, shipping and logistics industries the most between now and 2022, according to 44% of respondents. Enthusiasm for integration is more muted among respondents from the aviation industry, with 57% of respondents calling for additional capacity, particularly in emerging markets.
A fifth of respondents view new technology as the optimal investment opportunity for their industry, ahead of investment in infrastructure improvements. Big data and predictive analytics are expected to be the most significant drivers of change in the sector over the next five years according to 43 percent of respondents. However, as the sector increasingly looks to digitalisation 82% of respondents anticipate an increase in cyber-attacks over the next five years.
The impact of global political uncertainty (29%) and a global recession (22%), are seen as the greatest threats to the sector over the next five years.
While 52 percent of respondents from the rail industry believe finance will be increasingly available over the next five years, just 22 percent from aviation and shipping, and 19 percent from logistics, hold the same view.
Harry Theochari, global head of transport, Norton Rose Fulbright, comments:
“The sector is moving towards closer collaboration with other modes of transport. The development of Mobility as a Service, with bespoke end-to-end passenger journeys and tailored logistics chains will enable operators to offer services where supply fits demand rather than vice versa.”
“Technology investment is on the rise and that seems likely to continue. Big data and predictive analytics give operators the ability to anticipate repairs and maintenance and to better understand and forecast consumer behaviour giving those operators a significant competitive advantage at a time of increasingly fierce competition across the sector.”
“There is apprehension about the impact global political uncertainty will have on transport businesses. This is unsurprising when you consider that the success of the transport sector relies on strong global trade and the ability to operate with as few restraints as possible. As the Brexit process unfolds, many will be looking at its direct impact and working through a number of potentially complex implications.”
“Asia continues to be the most popular region for investment opportunities for aviation, shipping, and logistics, with the rail industry looking to Europe predominantly. China’s Belt and Road initiative is one of the greatest infrastructure initiatives of our time and is part of a wider trend Eastwards for major trading routes. It is unsurprising that respondents are most enthusiastic about investment in Asia, and China in particular.
“The mood across the sector is optimistic and it is encouraging to see respondents from the shipping industry looking more positive than in previous years.”
Sentiment is overwhelmingly positive in the aviation industry, with 90 percent of respondents reporting that current market conditions are favourable for their industry.
Respondents appear divided when asked what they view as the optimal investment opportunity for the sector. While 25 percent point to the development of new markets, both geographical and sectoral, 17 percent point to the purchase or leasing of aircraft, favouring new rather than used aircraft, and narrow-body rather than wide-body or regional aircraft. A further 17 percent highlight infrastructure improvements.
57% of respondents believe that increased airport capacity in emerging markets and at existing airports is the infrastructure investment that would benefit their industry the most over the next five years. 28% prefer to focus investment on air traffic control.
Unlike the rail, shipping and logistics industries, respondents’ enthusiasm for investment in new technology is more muted – just 5 percent believe that this is the optimal investment currently, compared with 20 percent of all respondents.
China offers the best investment opportunities over the next two to five years, according to 24 percent. India and the US are also popular markets for aviation investment, according to 16 percent and 11 percent respectively, with India overtaking the US in the past year. Regionally, Asia is the most popular investment market, favoured by 55 percent.
Despite the limited interest in investment in new technology generally, big data and predictive analytics finds enthusiastic supporters amongst respondents from the aviation industry
The ability to anticipate passengers’ behaviour, as well as maintenance issues and repairs, will be the biggest driver of change in the aviation industry over the next five years according to 47 percent, and is likely to give the operators who adopt this technology a clear competitive advantage.
When asked which regulation has had the greatest impact on the aviation industry over the past decade, 30 percent pointed to an uncoordinated approach to aviation regulation globally, while 15 percent cite the regulation of competition and barriers to entry, and 13 percent mentioned fragmented and bilateral air service agreements.
Negotiating coordinated air service agreements comes top of the aviation industry’s wish list for government support. 25 percent believe that Open Skies agreements would be the most helpful form of government support for the aviation industry, followed by 18 percent who would like to see the removal of barriers to foreign investment – both key concerns for airlines with operations in Europe following the UK’s vote to leave the European Union. 16 percent would like passenger and fuel taxes to be lowered.
29 percent of respondents anticipate that capital markets will be a key source of funding over the next two years, followed by 25 percent who point to operating leases (which free up airline capital), and 24 percent who point to bank debt. Respondents are broadly satisfied that finance will remain available to the aviation industry – 65 percent believe that access to funding will remain at the same level over the next five years, while 22 percent believe that funding will become increasingly available.
86 percent believe that current market conditions are favourable for their industry, down marginally from 92 percent in 2016. The continued confidence of respondents from the rail industry is attributed to growing urban populations creating increased demand for rail transport, cited by 40 percent.
Improved conditions in key markets is highlighted by 16 percent and the availability of funding for investment and the emergence of new market opportunities are both cited by 12 percent. 52 percent of respondents from the rail industry believe finance will be increasingly available over the next five years.
Half of respondents from the rail industry believe that integration with other forms of transport to develop Transport or Mobility as a Service, creating and managing journeys using a mix of public and private means of transport, including the “last mile” leg from the station to destination and paid for with a single account, would be more beneficial than increased capacity on existing lines and the development of high speed lines.
In common with respondents from the shipping and logistics industries, rail respondents expect big data to be the technology most likely to transform the rail industry over the next five years. 38 percent believe that the ability to anticipate passenger behaviour and predict repairs and maintenance issues via the adoption of big data and predictive analytics will be the biggest catalyst for change, followed by 21 percent who point to the increased automation of rolling stock, and 17 percent who point to. Software supporting Transport as a Service.
When asked what poses the greatest challenge to the operational efficiency of the rail industry, 31 percent point to inadequate infrastructure, while 17 percent express unease about a lack of suitably qualified people.
Regulation remains a concern for the rail industry. Aside from infrastructure investment, respondents believe that the government support most helpful to the industry would be deregulation and greater transparency as to the introduction of proposed regulation and in the application and enforcement of new regulation, both highlighted by 24 percent.
The regulation respondents would most like governments to address is the regulation of competition and barriers to entry. This is the regulation that has had the greatest impact on the rail industry over the past decade, according to 39 percent.
Confidence in the shipping industry appears to be improving. This year, 37 percent report that current market conditions are positive for the shipping industry, compared with 15 percent in 2016, 33 percent in 2015, and 69 percent in 2014. Asia Pacific is the region thought to offer the best investment opportunities overall, by 45 percent.
Aside from fuel efficient and low carbon technology, big data and predictive analytics is expected to be the most significant driver of change in the shipping industry over the next five years, according to 46 percent, while 19 percent believe that software supporting Transport as a Service, which allows for the development of tailored end-to-end supply chains, has the greatest potential to transform the industry.
The problem of overcapacity has been an enduring theme - 65 percent of the 63 percent who do not consider current conditions to be positive blame overcapacity. In fact, 35 percent of all respondents from the shipping industry believe that supply and demand imbalances pose the greatest challenge to the operational efficiency of the shipping industry, although this is down from 47 percent in 2016.
Of the 37 percent who believe current conditions are positive, 36 percent cite improved economic conditions, while 19 percent report that overcapacity issues have been largely resolved. Continued lower oil prices are also assisting the industry, according to 16 percent.
Just 22 percent believe that the availability of funds will increase, while 41 percent fear that funding will become more unobtainable, a considerably higher proportion than respondents from the aviation, rail or logistics industries. In addition, respondents are expecting lenders to take a tougher stance on problem loans, with 54 percent anticipating that enforcement actions will increase between now and 2022.
While funding is forecast to become more difficult to access, bank debt is expected to remain the industry’s primary source of funding, according to 23 percent, followed by private equity and shareholders, selected by 15 percent and 14 percent respectively.
Greater transparency as to the introduction of proposed regulation and in the application and enforcement of new regulation is seen as the most helpful form of government support for the industry, by 55 percent. A further 29 percent would favour deregulation, followed by 18 percent who favour fiscal incentives and a further 18 percent who call for the removal of barriers to foreign investment.
When asked which regulation has had the greatest impact on the shipping industry over the past decade, 43 percent pointed to increased environmental regulation, followed by 18 percent who highlight the impact of trade and financial sanctions, and 12 percent who point to fragmented global regulation.
About this survey
The survey, entitled “The way ahead” is the eighth annual survey of the transport sector released by Norton Rose Fulbright. It details 196 responses from a range of companies involved in aviation, rail, shipping and logistics globally including financiers, owner/operators, manufacturers, government entities and professional services firms, during April 2017.
Notes for editors:
Norton Rose Fulbright is a global law firm. We provide the world’s preeminent corporations and financial institutions with a full business law service. We have more than 3500 lawyers and other legal staff based in more than 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.
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