Why European transportation firms are making risk management a priority

The economic downturn has prompted nearly three-quarters (73%) of Europes leading transportation firms to review their approach to risk management, according to new research commissioned by Marsh, the worlds leading insurance broker and risk adviser.

In addition, almost four-fifths of respondents now believe that, as a result of the downturn, risk management has become more important at the most senior levels of their organisation. Most respondents (54%) felt that the transportation industry had been the sector hardest hit by the economic downturn.

Yet, despite a heightened awareness of risk and many companies reviewing their risk management strategy in the transportation sector, Marshs research reveals that this does not translate into a reduction in risk appetite. Only 40% of participants believe that their board has become more risk averse, while a similar proportion see no change in risk appetite; 14% believe their organisations risk appetite has actually increased.

Mark Pollard, Head of Industry Practices for Europe, the Middle East and Africa at Marsh, commented: It is unsurprising that the European transportation sector feels that it has been hit extremely hard by the recession: the industrys primary function is to transport goods and people, demand for which traditionally declines during a downturn.

However, it is extremely encouraging that firms have used the recession as an opportunity to review their approach to risk and build their resilience: 30% of participants expect their risk management expenditure to increase over the next 18 months, at a time when many are striving to cut costs and budgets in other areas, while just 8% of transportation companies expect budgets to decrease.

Marshs research reveals that customers currently present a significant concern for 62% of respondents, with many highlighting the increased risk of customer debt, credit lines and delayed and non payment as key challenges. Credit risk will continue to be a near-term concern for the transportation industry; a quarter of participants (26%) highlighted credit risk as a key organisational risk over the next 18 months and one in six indicated that their firm has been fairly significantly or very significantly affected by a reduced availability of trade credit insurance.

Stephen Roberts, Leader of Marshs UK Strategic Risk Practice, added: Many organisations find that the scope of their existing risk management does not capture their entire risk footprint. The recession has brought to the forefront strategic risks such as supply chains, business partnerships, fluctuating commodity prices, not to mention supplier and customer liquidity issues. These are just some of the flashpoints currently facing European transportation firms.

In addition to this report, Changing risks changing responses: risk management in the transportation industry, Marshs Risk Consulting Practice has recently developed two industry risk registers for the public transport and logistics sectors. These identify 17 risks that most commonly feature in the risk registers of organisations in these industries and can be used by companies to benchmark themselves against their peers.

Marshs report is a comprehensive study of risk management in the European transportation sector in the wake of the global financial crisis. Senior risk and insurance professionals in 115 firms with turnovers greater than 50 million across Europe were interviewed to examine their immediate risk management concerns, confidence in their ability to manage these risks, and how they plan to address risk management in the coming months.