Transportation and Logistics Sector Risk Outlook
Submitted by: Teresa Settas![Transportation and Logistics Sector Risk Outlook](http://wsrv.nl/?url=pressportal.co.za//images/articles/LjX5Btc7vdktNzDkg6NfdZZV8rHzCx3K.png&w=740&q=90)
Top 10 risks facing the transportation and logistics sector.
Opinion of Russell Davis, property manager – Aon broking centre at Aon South Africa.
The transportation and logistics industry has been battling the operational and commercial fallout of multiple global crises, including the COVID-19 pandemic and geopolitical conflicts. Because of the industry’s significance for the global economy, risks and challenges facing the industry will continue to receive scrutiny.
Aon’s latest Global Risk Management Survey highlights the top risks that transportation and logistics industry respondents ranked, with cyber-attack or data breach and economic slowdown or slow recovery as their two most critical risks. The top 10 risks facing the global Transportation and Logistics are ranked as follows:
- Cyber Attack or Data Breach
- Economic Slowdown or Slow Recovery
- Business Interruption
- Increasing Competition
- Workforce Shortage
- Supply Chain or Distribution Failure
- Regulatory or Legislative Changes
- Failure to Attract or Retain Top Talent
- Property Damage
- Failure to Innovate or Meet Customer Needs
The variations in the risks in the top rankings are driven by more immediate and pressing concerns of other risk factors within the region. For example, both Business Interruption and Supply Chain and Distribution Failure rank higher for South Africa, very likely driven by the Transnet crisis and the state of our ports, railway and roads infrastructure, and the dramatic impact this is having on supply chains. Infrastructure that supports trucking and logistics is rapidly deteriorating in many places. Political Risk also ranks at #9 whereas it does not currently feature in the global Top 10 – driven by the fact that it is an election year in South Africa with an increasingly uncertain and volatile environment. Each of these top 10 risks has tremendous significance for the transport and logistics industry, particularly given the ripple effect they have in a market environment where risks are increasingly interconnected and complex.
Unpacking the top five risks for South Africa’s Transport and Logistics Industry:
- #1 Business interruption is intrinsically linked to many other top 10 risks and is now more systemic, partially because of global business operations’ companies shifting from event-based to impact-based risk assessment. Business interruption can affect multiple industries, regions, trade paths and companies simultaneously as they phase in and out of periods of recovery.
- #2 Economic slowdown/Slow Recovery - While higher commodity prices are good for exporting countries such as South Africa, Transnet’s underperformance has impacted commodity exports and other sectors such as manufacturing and retail, weakening Africa's most advanced economy. The country is also faced with rapid inflation in the form of rising food and energy prices in addition to natural disasters such as record-breaking rainfall, drought and increased fire risk. Some of the side effects of an economic slowdown include a slowing or disruption of revenue streams, supply chain disruptions and financing issues, which could potentially lead to labour retrenchments in a bid to manage costs, further hampering the efficiency of the transportation and logistics sector. The industry also finds itself in a globalised environment where international competitors can step in and reduce the size of the pie even further.
- #3 Exchange rate fluctuations - the weakened Rand lends itself more towards an export-driven market than an import market, which effectively turns an industry that is governed by imports and exports as a business principle into a volatile rollercoaster ride.
- #4 Supply chain or distribution failure - the definition of supply chain risk is broadening and becoming more complex, extending well beyond keeping shipping vessels moving or suppliers’ manufacturing facilities intact. Today it involves the availability of talent, the ongoing solvency of critical suppliers, the ESG performance of a company’s supply chain, and the increased IP and cyber exposure triggered by shared supplier systems and processes. By its nature, the sector participates in complex, extended supply chains, which means there are many possible points of failure. Consider the rise in cargo theft, which is at a 10-year high. Social media and advanced technologies have made it easier for bad actors to spot and seize opportunities, including impersonating drivers, hijacking, and conducting fraudulent cargo pickups.
- #5 Commodity Price Risk/Scarcity of Materials – in the context of the transport and logistics industry, markets and supply chains have increasingly become global in nature, but disruptions in specific regions can have a pronounced effect on prices and supply. For example, In September 2023 global oil prices hit a 10-month high, spurred by falling shale oil production in the U.S. and a decrease in production by Saudi Arabia and Russia. The impact of rising oil prices reverberates across nearly every industry due to the commodity’s many uses. Oil is a critical component in many parts of the modern economy, notably transportation, and despite the focus on the energy transition, oil and its attendant price fluctuations will continue to be a factor in strategic planning for decades to come.
The industry will need to continue to develop new strategies to address the fast-evolving risks that are on its doorstep as well as any new risks that are approaching. Resilience and significant value are at stake. Having to pivot and constantly make high-impact decisions around protecting the company’s people and assets, its balance sheet, revenue, costs and business strategy is no small feat. In doing so, leaders are learning, three vital lessons:
- Decision-making must be driven by continually refreshing a business’ understanding of what is known today and then using that knowledge to recalibrate its understanding of how tomorrow is being reshaped.
- Leaders must have the right mindset, the most relevant data and information at their fingertips and a robust decision-making framework in place to manage a great deal of uncertainty.
- While no one can predict the future, making the best decision hinges heavily on having the right information available to inform the decision-making process to navigate towards a better future with clarity and purpose.
Embracing a problem-solving approach in decision-making will help organisations find solutions for the risks and crises it is faced with as these risks unfold. While many of these events cannot be insured directly, the value of having an expert risk advisor in your corner who can provide data and analytical insights from a global and local perspective will create a clearer picture of emerging technologies, trends and risk management approaches to help organisations make better risk decisions.
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