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There will be growth areas for transport coming out of the recession, say Gordon Hall and Amy Lindemann of London-based law firm Norton Rose

Transport workers can take some heart from a new survey by international legal practice Norton Rose. The Way Ahead for Transport had 900 respondents from businesses in the aviation, rail and shipping sectors. It was carried out in late 2009, and offers a snapshot of business confidence in the short to medium term future of the transport industry.

The rail industry is better insulated against the recession than other transport sectors, the survey found. This is unsurprising: there is a high level of government support to the rail industry and consistent passenger numbers. Even where rail operations are privatised or franchised in some way, state funding remains the primary source of financial support.

Companies are less optimistic about shipping and aviation. The reduction in global trade and lack of bank finance has hit the shipping sector, particularly containers and dry bulk carriers. Aviation businesses face challenges including rising or fluctuating fuel costs, terrorism, regulation over carbon emissions and a reduction in premium and leisure travellers. Thirty eight per cent of all respondents to the survey see it taking two to three years before any improvement is felt.

Survival of the fittest

Nearly half of those surveyed from the shipping and aviation world said they would be likely to dispose of “non-core” assets. In shipping there is a need to address the supply and demand imbalance created by the large number of ships ordered during the shipping boom years, which are due for delivery during the downturn. An overwhelming 77 per cent of respondents in the shipping sector think consolidation is inevitable in that industry. Strong companies that generated large earnings during the good times will prey on those weaker companies that bought ships at inflated prices.

It is a similar story in aviation where joint ventures are thought to be likely. Almost 60 per cent of respondents in that sector believe their organisation is likely to pursue a co-operation agreement or alliance with a strategic partner in the next 12-18 months. Job losses are likely to occur because of the consolidation in shipping and aviation, but the survey predicts that the offshore sector will suffer least.

Rail has fared better, but it has not been immune to the effects of the crisis. The fall in global trade and the drop in demand for raw materials has had a significant effect on rail freight. Coal shipments are particularly important for this sector but freight is a relatively small sector in comparison to passenger travel.

Rail respondents mainly thought that passenger numbers would diminish during 2009 but few predicted a severe drop: 56 per cent of 654 respondents from the rail sector to the survey think passenger numbers will drop by no more than five per cent. Rail is essential to business in most countries with large commuter populations and is a major employer.

There is concern in the sector that pressure on public finances and government deficits will halt plans for investment in infrastructure. Almost 40 per cent of the survey respondents from the rail sector think there will be decreased investment in rail infrastructure.

On the other hand, 43 per cent of those respondents think there will be an increase particularly in high-speed rail, which is seen as essential to future economic growth.

Location, location

The survey found consensus that the transport market of South East Asia is the most likely to recover quickest from the recession, followed closely by the Middle East and India.

Increased domestic demand and a stimulus package are driving economic growth in China where the government has made a US$600 million investment in rail infrastructure.

Rail operators in countries where rail travel is largely for commuters, will succeed.

In any recession there will be winners and losers. The players in all the transport sectors will need to be resourceful in order to survive.

Gordon Hall is the London banking partner for Norton Rose. Amy Lindemann is a London banking associate.