Transportation & Logistics 2030 - PwC
Transportation & LogisticsTransportation & Logistics 2030Volume 2: Transport infrastructure — Engine or hand brake forglobal supply chains?PricewaterhouseCoopers1
AcknowledgementsThe editorial board of this issue of our Transportation & Logistics 2030 seriesconsisted of the following individuals:PricewaterhouseCoopersEuropean Business SchoolSupply Chain Management InstituteKlaus-Dieter Ruske 49 211 981 2877klaus-dieter.ruske@de.pwc.comDr. Heiko von der Gracht 49 611 3601 8800vdgracht@supplyinstitute.orgDr. Peter Kauschke 49 211 981 2167peter.kauschke@de.pwc.comTobias Gnatzy 49 611 3601 8800gnatzy@supplyinstitute.orgJulia Reuter 49 211 981 2095julia.reuter@de.pwc.comProf. Dr. Inga-Lena Darkow 49 611 3601 8800darkow@supplyinstitute.orgDr. Elizabeth Montgomery 49 89 5790 5159elizabeth.montgomery@de.pwc.comWe would like to thank the panellists who took part in the Delphi survey that underpins this report.For confidentiality reasons their names will not be mentioned.Special thanks go to Keith Clarke, CEO of Atkins Plc., who took the time to share his thoughts andinsights with us.Finally, we would like to express our appreciation for the expertise provided by the below listedindividuals: Richard Abadie, Victoria Dickinson, Egon de Haas, Jonathan Hook, Alastair Howcroft,Oliver Jones, Dr. Azadeh Kopp-Moini Araghi, Peeyush Naidu, Carter Pate, Julian Smith, JanSturesson, Fred Vossen.For more information on the T&L 2030 series, a download of T&L 2030 Volume 1 and an outlookon T&L2030 Volume 3, please visit www.tl2030.com.2Transportation & Logistics 2030
WelcomeWelcome to the 2nd volume of Transportation & Logistics 2030 (T&L 2030). This report is dedicatedto one of the burning questions facing the sector: How will transport infrastructure be able tokeep up with increasing freight volumes and growing demand for fast, efficient, reliable andenvironmentally sustainable transport solutions?The resonance received by the first T&L 2030 report, published in October 2009, motivated us tocontinue the series, and also inspired some of the insights of this next volume. We learned that forsome, 2030 seems far in the distant future, a time-frame beyond imagination; and our undertakingto develop scenarios up to 2030 a bit overly ambitious. At the same time, though, we've heard astrong consensus that business leaders and governments need to put an even stronger focus onlong-term, scenario-based thinking and planning.In April 2010, volcano Eyjafjalla caused a scenario that took everyone by surprise. 100,000flights had to be cancelled, millions of passengers could not be checked in. According to theInternational Air Transport Association losses of revenue of airlines amounted to 1.3 bn Euro.Supply chains were disrupted in the automotive and other industries, causing productiondowntimes. Governments, airlines, logistics service providers - did they successfully put theircontingency plans into action?The need for long-term planning applies to the development of transport infrastructure inparticular. Ports, airports, roads, railroads, bridges, tunnels – they all have in common that their lifecycles span many decades, if not centuries. This requires long-term forecasting of the demand fortransport infrastructure, its impact on the economy and the environment. The finance needed forconstruction, operation and maintenance also needs to be planned over a long time-frame. In thisreport, we take a closer look at some of the key issues in these areas.This study was prepared by a team of experts from the Transportation & Logistics industrypractice at PricewaterhouseCoopers and the Supply Chain Management Institute at the EuropeanBusiness School. It draws upon a rigorous mix of desk research and the results of a Delphi surveyamong 104 selected subject matter experts from 29 countries around the world. In this report, wesummarise the findings of this survey, our key assertions and some conclusions that transportoperators and users may draw. In addition, we take a look at transport infrastructure from agovernment as well as an engineering & construction angle, describe some 'extreme scenarios'and present some promising future opportunities for both governments and businesses.We hope you will find this T&L 2030 report inspiring and welcome your feedback. Klaus-Dieter RuskeDr. Peter KauschkeGlobal Industry LeaderTransportation & LogisticsPricewaterhouseCoopersTransportation & Logistics 2030Programme rs3
ForewordTransport itself is somewhat paradoxical. For example, the transport minister of a WesternEuropean country declared that he would like to invest more in the infrastructure due to “thetremendous increase in freight transportation”. The odd thing is that his ministry announceda decrease in the amount of transports between 1995 and 2005: from 3300 to 3100 milliontons. What actually increased is the transport service provided for goods, measured in tonnekilometres: There were less goods transported but over longer distances and/or in smallerbatches. Such paradoxes perplex even the minister: Who could have predicted them ten yearsago? Any manager who relied on scenario techniques, rather than trusting solely to well-knowntrend extrapolations and single-point forecasts.The present study fills in some of the shortcomings of previous years. It conceptualisescircumstances not previously considered and draws plausible and consistent scenarios, forexample for the feared division of rural areas from urban strongholds of goods traffic. In fact,the surveyed experts are less worried about the second global rural exodus because they areexpecting it. Scenarios for financing transport infrastructure have already been run through.It is certain that the government will no longer be able to handle the necessary infrastructuresingle-handedly. Who will help out? Above all, who realises that not the construction, but ratherthe maintenance of transport infrastructure will be the most important financial challenge in thecoming years?Of course the relief from traffic on motorways, rural roads, and in downtown areas of cities isan important topic. However, at least equally important for the prosperity of a country is itscompetitive position, which is influenced by its transportation infrastructure. In particular, linkingdigital and physical infrastructure is a subject relevant for the future and in danger of beingunderestimated.In addition to calling attention to underestimated dangers, the study reveals those opportunitiesand potentials to governments, alliances, non-government organisations, industry and serviceproviders, which salvage the actual promise for a better future. Only he who recognises anopportunity can exploit it. Dr. Heiko von der GrachtDirector, Center for Futures Studies and Knowledge ManagementSupply Chain Management InstituteEuropean Business School4Transportation & Logistics 2030
Table of ContentsExecutive SummaryFindings of Delphi Survey7101 Trends in supply & demand112 Changes in finance193 The power of competitiveness264 Spread of sustainability31Highlights of Transport Infrastructure Projects37X-Industry Perspectives41Extreme 6Contacts69PricewaterhouseCoopers5
Executive Summary6Transportation & Logistics 2030
Transportation needs are growing strongly around the world.Continuing globalisation, coupled with high growth rates ofpopulation density and GDP in some regions, means that theflow of goods and people will continue to increase over time.Massive investments are being made or planned, posinghuge challenges for all parties involved. Some of the keyquestions include: Where are the greatest needs for transportinfrastructure development in the comingyears and decades? What are the most effective ways offinancing transport infrastructure? What willbe the roles of the public sector and privateinvestors? How can megacities and economic hotspotsbe appropriately equipped with transportinfrastructure while not decoupling ruralareas? Will transport infrastructure continue to be adriver of economic growth? How can transport infrastructure bedeveloped in an environmentally sustainableway?This reportTransportation & Logistics 2030Volume 2: Transport Infrastructure — Engine or hand-brakefor global supply chains?addresses these questions and develops some scenariosabout the future of transport infrastructure. It draws upona rigorous mix of desk research and the results of a Delphisurvey among 104 selected subject matter experts from29 countries around the world. These experts evaluated16 theses regarding their probability of occurrence, theirimpact on the transportation & logistics industry and theirdesirability. The editorial team, composed of membersof the Transportation & Logistics industry practice atPricewaterhouseCoopers and experts from the Supply ChainManagement Institute at the European Business School,interpreted the responses received from the Delphi panel,drawing on the background of their advisory and researchexperience.In the first chapter of this report 'Findings of Delphi Survey',we summarise the findings of this survey, outline our keyassertions and highlight some conclusions that transportoperators and users may draw.Section 1 looks at some significant trends in supply &demand. The quantity of goods needed to serve the world'srapidly growing global population will increase over the nexttwenty years. And the demand for transport infrastructureis unlikely to be fully met in the thesis period — if ever. Atpresent, industrialised countries look likely to continue tokeep a leading position in terms of transport infrastructureprovision. While many emerging countries are recordingrecord levels of investment in transport infrastructure, theyare unlikely to bridge the existing gap completely by 2030.Urban areas are also likely to receive the bulk of futureprojects, as investors "follow the money" and focus on fastergrowing cities and megacities. Governments may need tooffer incentives to ensure that rural areas remain connected.Governments will also need to take a closer look at actionswhich help manage demand, including regulatory measuressuch as road tolls or congestion charges. While suchregulation has certain drawbacks, and political oppositionmay be fierce, they potentially offer significant benefits,both in terms of reducing traffic volumes and by generatingfunds to reinvest in transport infrastructure. Efficient pricingbased on external cost matches supply and demand at itsmost efficient point, leading to direct economic benefitsby reducing externalities (i.e. congestion, pollution) to theoptimum level. Large-scale implementation of road pricing isforeseen, so users should be prepared to pay more for usingtransport infrastructure in the future.In Section 2 we take a closer look at a number of questionsrelated to financing transport infrastructure. Governmentsare aware of the need to build a strong infrastructurefoundation, but many are facing enormous challenges indevoting sufficient capital resources to such projects. Andwhile the availability of capital for investment in transportinfrastructure varies from country to country, companies alikeare facing significant hurdles in most places. Logistics serviceproviders looking to make strategic decisions about enteringnew markets need to understand those markets fully. Thismeans assessing both the probable availability of capitaland the willingness of governments to invest in transportinfrastructure.Such investments must of necessity include sufficientprovisions for maintaining existing transportationinfrastructure. For many governments, ensuring sufficientfunding for maintenance actually poses a greater challengethan generating capital for new projects. Public officialsPricewaterhouseCoopers7
need to find an appropriate balance between investments intransport infrastructure and an ongoing financial commitmentfor the maintenance of existing facilities, and should ensurethat maintenance needs are incorporated into the fundingstructure of all new projects.Simply shifting all responsibility to private financiers willnot be the answer, though. Instead, public authorities andprivate investors will need to investigate various options forsharing responsibility and risk. Rather than a one-size-fitsall approach, governments will need to identify a range ofstrategies and work together with private investors to createa win-win situation on individual projects.Concerns around financing will be paramount at all levelsof infrastructure, local, national or international. At thelocal level, funding is likely to remain a key responsibility ofpublic authorities and local officials will need to be sensitiveto the needs of voters. Governments will be in charge oftransport infrastructure procurement, but they will focus oncontributions from the key beneficiaries of new infrastructure.In contrast, private investment funds will increasingly bethe strategic drivers of international large scale transportinfrastructure projects. Such funds are likely to invest innational transport infrastructure only if the deal size issubstantial and thereby economically essential, or if it offers aprogramme of opportunities.Section 3 addresses several factors which will impactcompetitiveness over the next twenty years.Getting transport infrastructure right is critical. The presenceor absence of transport networks which facilitate efficientsupply chains is already a factor in investment decisionsaround the world; the ability to offer a solid infrastructureis likely to become an even more important criterion indetermining a country's or region's competitiveness in thefuture. Transport infrastructure remains a deciding factor forthe economic prospects of a country.Those regions which are able to implement Infrastructure 2.0— by which we mean a system fully integrated with moderninformation and communication technology (ICT) — willbenefit most. ICT will be a key enabler for the developmentof cutting-edge transport infrastructure and transportinfrastructure development should focus more on integratingdigital infrastructure. Individual regions will also be able toincrease their competitive advantage by taking full advantageof the potential of logistics clusters. The close collaboration ofindustry, academia and government in such clusters will activatenew potentials in transport infrastructure development.8Transportation & Logistics 2030In section 4, we look more closely at perhaps the mostsignificant challenge to be faced over the next 20 years:ensuring the sustainability of transport infrastructure.Transport infrastructure and transport networks haveprofound effects on the environment. These impacts willneed to be assessed from a holistic, long-term perspectiveto ensure that greenhouse gas emissions and other negativeimpacts on the environment are minimised to the greatestextent possible. Efforts to reduce demand and optimisecapacity will play a part. An emphasis on innovation will alsobe critical in finding more eco-friendly transport solutions.Such programmes will be economically necessary, asincreased regulation around greenhouse gas emissions in theform of emission trading systems or other mechanisms lookslikely.Ultimately, environmental costs will become an integral partof assessing the full costs of a transport infrastructure andwill need to be calculated into the business case for anyproject. When assessing the environmental compatibilityof transport infrastructure solutions, the entire life cycleof construction, operation and deconstruction should beconsidered.The second chapter 'X-Industry perspectives' provides viewsof transport infrastructure from different angles. The firstlook is from the perspective of the builder of infrastructure,represented by a CEO from the Engineering & Constructionsector. Keith Clarke, CEO of Atkins Plc. shares his viewsthat good infrastructure design will be more efficient, usingless land and fewer material assets, as well taking intoaccount the whole life carbon impact. Clarke believes thattransport infrastructure operators will need to recognise thatthe environmental impact of their activities is an intrinsicbusiness cost, a fact of life which may mean more efficient,but marginally slower travel, will be used to increase capacitywhile minimising costs and environmental impact.How will the public sector respond to the challenges posedby transport infrastructure? PwC's Government & PublicServices Industry Leader, Jan Sturesson, provides a viewfrom the perspective of government. He anticipates fourmain developments over the next twenty years: a) Anincrease in private finance and a focus on user-charging.b) A more stringent management of demand throughregulatory measures. c) The need to design sustainable andtechnologically sophisticated solutions for urban centres.d) The need for governments to manage and prioritise thissupply and demand of transport infrastructure.
Decision makers need to prepare for the worst. Today, mostbusinesses have long-term strategies in place which arebased on the most likely, foreseeable future developments.However, recent history has proven that contingencyplanning based on different scenarios is gaining importance.Thus, in the chapter 'Extreme scenarios' we elaborate onextreme scenarios that may be the result of unexpecteddevelopments. Extreme scenarios can help broaden decisionmakers’ awareness of future developments which are notvery likely, but which could potentially have a fundamentalimpact on the industry or on specific companies.settings, or below the ground, to develop undergrounddistribution systems for cargo. Other opportunities maystem from more effective use of existing technologies — forexample, using IT to improve urban freight transit efficiency,extending automated guided vehicles outside of intralogistics settings and incorporating cars for freight intoexisting high speed passenger trains. Applying techniquesalready in use in other sectors also offer possibilities, suchas re-usable infrastructure. Some opportunities are basedon very simple concepts — foldable containers could reducecosts significantly, given that 30% of containers are currentlytransported empty.In order to demonstrate this method, two of the 16 theseswere chosen, both dealing with the financing of transportinfrastructure: 1. Financing the maintenance vs. Financingnew transport infrastructure; 2. Governments as investors intransport infrastructure vs. Shift of investment to the privatesector. The two theses were juxtaposed, creating 4 extremescenarios which hold very different implications for thetransportation and logistics industry.Opportunities will also arise around financing, includinginfrastructure sponsoring, the development of "transportinfrastructure corporations" and a far more widespread useof flexible pricing. Sustainability will also continue to gain inimportance, so applying infrastructure impact analyses ortotal value of ownership methods will be critical. Visionarygovernments may even go so far as to construct Eco-Cities.How should businesses and governments respond? Thechapter 'Opportunities' highlights some promising futureopportunities. Logistics service providers may choose tospecialise on rural areas, for example, while governmentsmay set up incentives to help stem the rural exodus. Many ofthe opportunities revolve around potential innovations, suchas the use of continuous conveyor systems for containers,CO2 absorbing materials, bacteria-produced roads, selfhealing materials or morphing materials. Companies maylook upwards and build Sky Trains in crowded urbanThis report addressing 'transport infrastructure' is the secondpublication of our Transportation & Logistics 2030 series(Volume 2). The first report of the series took an in-depthlook at the implications for the sectors of diverse issuesaround 'energy & emissions' (Volume 1). We
Supply Chain Management Institute Klaus-Dieter Ruske Dr. Heiko von der Gracht 49 211 981 2877 49 611 3601 8800 klaus-dieter.ruske@de.pwc.com vdgracht@supplyinstitute.org Dr. Peter Kauschke Tobias Gnatzy 49 211 981 2167 49 611 3601 8800 peter.kauschke@de.pwc.com gnatzy@supplyinstitute.org Julia Reuter Prof. Dr. Inga-Lena Darkow
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International Air Transport Association losses of revenue of airlines amounted to 1.3 bn Euro. Supply chains were disrupted in the automotive and other industries, causing production . Global Industry Leader Transportation & Logistics 2030 Transportation & Logistics Programme Director PricewaterhouseCoopers PricewaterhouseCoopers. 4 .
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