Transition  in  Transport  

 Ground  Based  Transport  Sector  Analysis  
 
Transport  sector  is  a  hugely  diverse  with  a  range  of  business  scales  dealing  in  logistics  and  
distribution.  It  has  been  a  key  facilitator  and  driver  of  global  economic  prosperity.  The  
sector,  comprised  of  rail,  road,  private  and  commercial  delivery,  was  worth  USD  $1882.2  bn  
in  2009.  Road  travel  is  the  dominant  modality.  Geographically,  the  market  is  much  larger  in  
developed  countries  and  is  linked  strongly  to  economic  development1.  This  analysis  studies  
the  commercial  freight  sector  although  strong  parallels  can  be  drawn  between  private  and  
public  transport  as  well.  
 
 
 
Climate  Change  and  Corporate  Strategy  
 
 
 
 Barriers  to  entry  and  exit  create  high  levels  of  competition  within  the  
rail  sector.  Conversely  low  running  costs  and  threat  new  entrants  
increases  road  sector  rivalry.  

State  of  forces  in  the  Industry    

   
Barriers  to  entry   Low  switching  costs  and  risk  improves  buying  
Transport  features  in  almost  all  other   power.  Large  consumers  are  known  to  
industries’  supply  chains.  Road  freight  has   integrate  backwards,  establishing  in-­‐firm  
small  scales  of  economy,  reducing  fixed  cost   transport  fleets,  noticeable  in  supermarkets.  
and  entry  barriers  hence  a  corresponding    
increase  in  sector  rivalry.  Rail  transport  is  a    
complicated  mix  of  state  and  private   Suppliers  
investment  and  tightly  regulated  by   The  sector’s  high  dependent  upon  energy  
government.  Due  to  the  lack  of  infrastructure   resources,  98%  of  which  is  oil,  gives  suppliers  
capacity1,  railways  have  limited  numbers  of   of  fuel  and  electricity  large  bargaining  power1.  
operators  creating  a  low  threat  of  new   Focus  on  diversify  away  from  fossil  fuels  
entrants.  High  entry  barriers  of  large  capital   driven  by  climate  change  concerns,  pollution  
investment  in  specialized  rolling  stock  also   and  rising  oil  prices  is  starting  to  bring  
reduces  accessibility  to  new  entrants.  Lack  of   alternative  energy  source,  however  new  or  
differentiation,  brand  loyalty  and  large  choice   existing  large  suppliers  are  likely  to  maintain  
of  services  increase  competition  across  the   a  hold  over  such  markets.    
commercial  freight  sector.    
   
Competitive  rivalry  
 
Threat  of  Substitution  
Market  for  transport  has  been  saturated  in  
As  a  driver  and  facilitator  of  economic  growth,   developed  countries,  although  the  rising  costs  
the  integral  need  for  transport  and   and  environmental  awareness  is  increasing  
distribution  in  the  economy  reduces  the   demand  for  more  efficient  cars  but  uptake  in  
likelihood  of  generic  substitution.  Modal   new  products  is  slow  due  to  large  investment  
substitution  away  from  ground-­‐based  sector   thus  creating  a  highly  competitive  market.  
has  increased  with  the  rise  of  short-­‐  medium   Commercial  freight  transport  has  experienced  
journeys  in  aviation.  The  greatest  degree  of   a  change  in  commodity  demand  with  smaller,  
substitution  exists  within  the  industry   higher  value  goods  having  greater  need  for  
between  rail  and  road.  Government  policy  has   flexibility  leading  to  a  rapid  growth  in  road  
been  responsible  for  increasing  rail  based   base  transport.  Low  barriers  to  entry  and  low  
transport’s  stake  in  the  sector;  a  reverse  of   fixed-­‐costs  creates  rivalry  in  the  road  sector.  
the  previous,  long-­‐term  trend.   Bottlenecks  in  rail  infrastructure  mean  that  
  the  railways  are  operating  at  max  capacity  
Buyers     and  rivalry  increases  with  the  high  capital  of  
Buyer  power  of  consumers  is  reduced  by  the   rolling  stock  creating  barriers  to  entry  and  
economy-­‐wide  need  for  transport  reducing   exit  and  high  running  costs.    
the  concentration  of  buyers.  In  the  rail  sector  
this  is  reduced  further  by  the  near  
monopolization  that  can  exist.  

The  sector  dependence  upon  fossil  fuel  in  creating  concerns  as  fuel  prices  rise.  Past  declines  in  rail  
transport  are  reversing  due  to  government  policy  on  CC.  Growth  in  industrializing  regions  
transportation  needs,  such  as  China,  is  predicted  to  be  9-­‐fold  by  2050  due  to  gains  in  population  and  
affluence1.  China’s  infant  infrastructure  network  leaves  openings  for  alternative  new  transport  
systems  increasing  opportunities  for  new  market  entrants.  
 
                                                                                                               
1  Meyer,  I.  Leimbach,  M.  &  Jaeger,  C.C.  2007.  International  
passenger  transport  and  climate  change:  A  sector  analysis  
in  car  demand  and  associated  CO2  emissions  from  2000  
to  2050.  Energy  Policy  35  (2007)  6332–6345  
Changing  Industry.    
   
Climate  change  is  likely  to  have  some  of  the   Higher  oil  prices  and  the  concern  for  oil  
largest  impacts  in  the  transport  sector,   supply  security  are  an  extra  incentive  to  
through  regulation.  Transport  was   reduce  the  oil  consumption  in  the  road  sector.  
responsible  for  about  23%  of  world   Careful  design  and  location  of  distributional  
greenhouse  gas  emissions  in  2008,  75%  of   networks  and  hubs  will  be  required  to  
which  was  ground  base  transport2,  rising  48%   maximize  efficiency  to  reduce  transport  
between  1990-­‐  2008.  Rail  freight  makes  up   distance  and  fuel  costs.    
39%  of  transported  goods  volume  yet  road    
transport  accounted  for  82%  of  total  CO2   The  rise  of  fast  moving  consumer  goods  and  
emissions1.  Increasing  global  political   flexibility  needs  has  lead  to  increased  road  
motivation  to  curb  CO2  emissions  will  require   transport.  As  a  supply  industry,  transport  is  
a  significant  change  from  a  BAU  scenario  in   highly  influenced  by  consumer  demands  and  
this  sector.     expectations.  Many  expect  changing  
  consumption  patterns,  with  increase  demand  
Much  of  the  policy  on  climate  change  has   for  local  products  requiring  larger  regional  
looked  at  standards  and  energy  efficiency  to   scale  distribution  networks  as  well  as  
reduce  emissions  and  develop  alternative   demands  for  faster  modes  of  transport,  such  
clean  energy  sources.  Modal  switching  from   as  high-­‐speed  rail5.  
road  to  rail  is  gaining  political  encouragement    
driven  by  lower  energy  use  and  higher   Transport’s  success  has  been  driven  by  
efficiency.  However,  as  total  emissions   technological  innovation.  Economic  efficiency  
continue  to  rise,  the  limited  scope  for   is  leading  to  increased  in-­‐engine  and  fuel  
abatement  schemes  means  emission   efficiencies  to  drive  down  costs.  However,  
reductions  must  come  from  within  the  sector.   these  gains  in  efficiency  have  not  reduced  
Increasingly,  subsides  for  alternative  fuels  are   over-­‐all  energy  use  due  to  rebound  effects.  
available  as  governments  worry  about  energy   Long-­‐term  abatement  is  greatly  reliant  upon  
security.  A  growing  viable  alternative  is   alternative  fuels  but  expansion  of  these  will  
electricity,  which  is  being  propagated  by  large   require  large  technological  gains  to  be  
subsidies;  Obama  administration  has  created   commercially  viable    
US$4.4  bn  subsidy  for  Electric  Vehicle    
technology.3   Government’s  targets  precipitate  actions  to  
  significantly  reduce  emissions  from  this  
Transport  sector  has  considerable  inertia  due   sector.  Assessment  of  transport’s  GHG  
to  high  capital  investments  and  long   mitigation  policies  indicates  that  existing  and  
investments  timeframe,  slowing  the  cycle  of   planned  measures  will  not  be  sufficient  to  
innovation  uptake.  The  average  vehicle  has  a   stabilize  transport  CO2  emissions3,  
lifespan  of  15  years  but  increased  regulation   anticipating  that  governments  will  require  a  
is  likely  to  increase  maintenance  costs  and   new  method  of  approach.  Many  firms  foresee  
stock  turnover,  as  older  vehicles  fail   a  legal  obligation  to  disclose  and  manage  
standards.     emissions,  requiring  systems  to  track,  report,  
document  and  allocate  costs  from  emissions4.

The  cost  of  energy  and  government  climate  change  policy  are  two  major  concerns  
in  this  sector.  Consumer  demands  for  reduced  costs  and  environmental  impacts  
has  not  led  to  an  overall  energy  use  reduction.  There  are  signs  of  decoupling  
economic  activity  from  transport  GHG  emissions3,  however  it  is  likely  that  most  
countries  and  firms  will  have  to  envisage  a  significant  departure  from  “business  as  
usual”  in  policies  and  strategies  within  the  transport  sector  to  reduce  emissions  
and  avoid  dangerous  climate  change.    
 

                                                                                                               
2  (OECD,  2010).  Sector  emissions  data  sheet                                                                                                                  
3  Stef  PROOST,  S.  &  VAN  DENDER,  K.  2010  WHAT   4  PriceWaterhouseCoopers.  Transportation  &  Logistics  
SUSTAINABLE  ROAD  TRANSPORT  FUTURE?  TRENDS   2030.  Volume  1:  How  will  supply  chains  evolve  in  an  
AND  POLICY  OPTIONS.  OECD   energy-­‐constrained,  low-­‐carbon  world?  Available  at  
  www.pwc.co.uk