Transportation and Logistics
Key Issues for the Industry Currently Reflected in the Risk Selection
Economic slowdown and slow recovery is a major challenge for the transportation industry. Amid a slowdown in global economic growth, in part caused by trade tensions between the U.S. and China, the logistics industry remains buoyant.
Supply chain risk is widespread in the transportation and logistics industry. Supply chains are increasingly interdependent, and disruptions are becoming more frequent and more severe. Meanwhile, risk transfer and management solutions to address these growing risks are limited and immature.
Globally, recovery from the COVID-19 pandemic is proving to be complex, with huge regional disparities in vaccination availability and rates and other factors.
Concerns about cyber attacks and data breaches are an expected result of the pandemic given the massive growth in online traffic and transactions — a trend that appears likely to become permanent.
Logistics companies across the value chain are feeling pressure to prioritize operational efficiencies by investing in technology and innovation. Freight forwarders that offer innovative online solutions in freight matching, custom brokerage and transportation management solutions are now expected to transform the segment with enhanced customer experiences.
Surprises in the Top 10 Risks Selected
Notwithstanding the differences between developed and developing countries, political risk is on the rise around the world and could emerge to disrupt the global economy and supply chains. Formerly a “sleeper” risk, political risk is now firmly on the radar for transportation and logistics leaders.
Surprisingly, workforce shortage risk dropped from number 10 in 2019 to number 15 in 2021. While the pandemic is starting to recede and global markets are finally beginning to stabilize, demands in the logistics industry are still intense, especially when it comes to hiring skilled workers. For example, in the U.S. alone, the Bureau of Labor Statistics forecasts more than 600,000 new job openings in the logistics industry by 2029.
Accelerated rates of change in market factors dropped to number 10 from number five in 2019. This is particularly surprising considering the recent trade war between the U.S. and China, Brexit and other recent developments.
Most Underrated Risks
Transportation and logistics respondents ranked risks associated with supply chain or distribution failure at number seven. Arguably, those risks should rank higher given the industry’s substantial challenges related to recent events, including the six-day blockage of the Suez Canal in March 2021 and uneven global vaccine distribution.
At number 35, geopolitical volatility was also underrated considering the impact of the recent trade war between China and the U.S., conflict between China and Australia over the origins of the coronavirus (COVID-19), and the suspension of the EU-China Comprehensive Agreement on Investment and its related impact on the transportation industry.
Challenges the Industry Will Face in the Next 3 Years and What Organizations Can Do to Address Them
The American Trucking Association projects a shortage of more than 100,000 drivers by 2023, caused by an aging workforce and the challenge of recruiting new drivers. An expected increase in demand due to the growth of e-commerce will only exacerbate this risk. Similarly, the aviation industry is projected to need more than 200,000 new pilots in North America alone over the next two decades to accommodate growth and the mandatory retirement age of 65 for pilots.
Risks associated with the industry’s dependence on others — for vessels, ports, logistics hubs and more — will only increase, making supply chains more vulnerable.
The COVID-19 pandemic significantly condensed and accelerated changes in consumer habits globally. New habits that might have taken root over a decade became the norm in a matter of months. Now companies will need to determine which new habits will endure and plan accordingly.
ESG (ranked at number 25) and climate change (at number 34) will be big risks for the industry in the next three years. Logistics is a key contributor to climate change, and stakeholders across the board, from customers to the investment community, demand sustainable solutions. Companies need to understand what’s at stake due to climate change and set up a road map for decarbonization to comply with upcoming regulations. Greater frequency and severity of climate hazards can create more disruptions in global supply chains, interrupting production, raising costs and prices, and hurting corporate revenues.
How New Challenges Will Require Companies to Change Their Approaches to Risk Management and Mitigation
In addition to traditional risk management approaches, which tend to focus on liabilities and physical loss, organizations will need to prepare for emerging and accelerating risks such as cyber attacks and supply chain failures.
Given the increasing rate of change and uncertainty, companies that learn to continually adapt and adjust will prove more resilient than those that don’t. Although there has never been more data available to assist this effort, learning what data to collect, and interpreting those data sets to implement solutions, will be key to this broader effort. Using data and analytics for risk management, prediction and mitigation — at ever more granular operational levels — is one of the new sciences behind this industry.
Current Top 10 Risks
Predicted Future Risks