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Challenge: Securing Government Support for High-Speed Rail - Budget concerns have led government agencies in California and the UK to scale back proposed high-speed rail services, illustrating a difficulty faced by developers of costly transportation infrastructure projects. Prospects of linking Los Angeles and San Francisco, and interim points with a statewide high-speed rail network, have been dealt a blow by budgetary and practical considerations. The plan requires maximization of passenger numbers, which means an increase in the number of cities/stops included in the network. Similarly, the HS2 plan linking the north and south of the UK is looking at a reduction in number, capacity, and velocity of trains, according to the Guardian. In contrast, China, with its command economy, is hoping to counter its economic slowdown by creating almost 2,000 miles of high-speed railway this year.
Industry Impact - Recent setbacks in high-speed rail projects could affect railroad companies' capital planning in 2019.
Fuel Costs - Managing fuel costs is a major challenge for all types of transportation services providers, as spending on fuel directly impacts profitability. Fuel costs in the airlines industry, for example, can equal or exceed labor costs. To protect against volatility in fuel prices, companies may engage in fuel hedging, whereby they agree to buy large amounts of fuel at a fixed price Fuel surcharges are also used in some industries to offset rising fuel prices.
Demand Tied to Economic Growth - Companies engaged in transportation and warehousing services are particularly vulnerable to negative trends in the economy. Because many transportation services providers have high fixed costs, maintaining profitability during periods of reduced demand can be difficult. Downturns in construction spending, consumer confidence, industrial production, or tourism affect most transportation industries.
Extensive Government Regulation - Transportation companies are subject to numerous laws and regulations dealing with issues ranging from safety and labor practices to environmental policy and trade restrictions. Airlines, for example, are overseen by the Federal Aviation Administration (FAA), the Department of Transportation (DOT), and the Transportation Security Administration (TSA), among others. Consolidated industries such as railroads and deep sea shipping also attract intense scrutiny regarding pricing practices.
High Capital Spending - Businesses in the transportation sector typically face extremely high capital expenses. Building and maintaining railcar, aircraft, ship, and truck fleets can cost hundreds of millions of dollars annually. The financing necessary to make such purchases can result in high debt-to-capital ratios.
Alternative Fuels - Government mandates, high gas and diesel prices, environmental concerns, and a desire to be less oil-dependent are driving adoption of alternative fuels across the transportation sector. Trucking companies, railroads, and air charter services are all exploring the use of biodiesels. Natural gas-powered engines and electric hybrid motors have also been adopted in limited numbers.
Increased Security - Concerns about terrorism in the US and abroad have led governments to enforce more stringent security requirements for all modes of transportation. Department of Transportation security guidelines address such issues as cargo security procedures and training of security personnel. Adhering to new guidelines can raise costs for transportation and warehousing companies.
Mobile Fleet Management Systems Proliferating - The use of commercial telematics is growing rapidly among both local and long-haul trucking fleets. At the beginning of 2016, about 8 million devices using GPS and other wireless technologies were being used to manage fleet vehicles, trailers, construction equipment, and mobile workers in the US, according to a recent study by C.J. Driscoll & Associates. The telematics research and consulting firm projects that number will jump to more than 14 million units by 2019, with fleet management hardware and services generating revenue of almost $4.7 billion. Much of the growth will come from the integration of electronic logging devices (ELDs) for monitoring driver hours of service.
Transportation Sharing - A growing number of technology companies are developing smartphone apps similar to those used the popular ride-sharing services to facilitate on-demand trucking services. Although ride-sharing services such as Uber and Lyft pose a serious competitive threat to taxi services, the underlying technology could benefit other providers of transportation services. Early efforts have been aimed primarily at "last-mile" delivery, connecting shippers and local truckers. By eliminating broker fees and reducing carriers' reliance on phone conversations, faxes, and emails, such services promise to reduce administrative costs for carriers and make it easier for shippers to quickly find trucks and track shipments on their smartphones.
Unmanned Vehicles - Transportation service providers and equipment manufacturers are exploring the potential of unmanned vehicles, or drones. Some freight transportation companies believe unmanned aerial vehicles (UAVs), which are already used extensively in military applications, could be used to move commercial freight. Development of unmanned cargo ships and driverless trucks is also underway. Unmanned vehicles promise to lower costs by removing the need for crews and related support systems, but substantial technical and regulatory challenges must be overcome before such vehicles can be deployed.
Technology Increasing Productivity - Information technology is helping parcel and freight transportation companies increase efficiency and productivity. Bar code readers and radio frequency identification (RFID) tags help shippers track goods more accurately; route optimization software helps trucking companies, airlines, and waterborne shippers reduce fuel costs; and Web-based information systems provide customers with real-time tracking updates.
Population Growth - As the world's population expands, demand increases for transportation services that move people and goods. Growing population density, along with a trend toward urbanization, is providing greater opportunities for mass transit services, in particular. The global population topped 7 billion during 2011, and is expected to reach 9 billion by 2043, according to the United Nations.
E-Commerce Growth - Demand for delivery services is growing as businesses and consumers increasingly purchase goods online. Large delivery companies often contract with online retailers to fulfill their shipping needs. E-commerce has also allowed more companies to sell goods in foreign markets, increasing demand for international transport.
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Revenue (in current dollars) for US transportation services is forecast to grow at an annual compounded rate of 4% between 2019 and 2023. Data Published: January 2019
Demand: Depends on economic growth
Need efficient operations
Risk: Volatility of fuel costs
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