The current Covid-19 situation reminds us to a decade before – the longer a certain trend prevails, the more people tend to rely on historical development to predict future outcomes. In the opinion of the author, the pandemic and resulting worldwide economic downturn is only a further example of this limitation to many forecast projects. These crises have shown that critical junctures and structural changes can alter the current and future situation entirely. Forecasts that have thoroughly been prepared on historical data and expected future developments become obsolete within a relatively short period. So, how to achieve robust forecasts in times like these?
It is more than ten years ago that the world financial and economic crisis hit economies worldwide. At that time, I was a student of transport economics and as part of our courses on statistics, I have learned how to apply models that draw on historical data to forecast future economic results such as economic output. I have learned that this process has a major limitation – namely, that these models cannot predict structural changes. The current Covid-19 situation reminds me to what I have seen a decade before – the longer a certain trend prevails, the more people tend to rely on historical development to predict future outcomes. In my opinion, the pandemic and resulting worldwide economic downturn is only a further example of this limitation to many forecast projects.
Importance to Transport Projects
These crises have shown that critical junctures and structural changes can alter the current and future situation entirely. Forecasts that have thoroughly been prepared on historical data and expected future developments become obsolete within a relatively short period. Seaports face sudden drops in handling volumes, river ports loose cargo to rail ports or road freight, and achieved handling volumes are set back significantly. Not rarely do these events and changes represent a turning point with serious long-term consequences. In the past, ports that used to be the preferred gateway, transport routes that represented the primary way to connect markets and transport modes that constituted the prevailing modal option loose strongly in importance.
This concerns me since it is part of our daily business at HPC Hamburg Port Consulting to design transport systems ranging from sea-, river- and airports to rail terminals and pertaining operations on behalf of our customers from the private and public sector worldwide. As many transport projects have literally been built on these forecast figures, these critical junctures and structural changes have far-reaching and often crippling effects on transport systems. Private and public organisations have invested in their transport systems often at high opportunity costs. In addition, what characterises many of these projects is that they require a long-term investment commitment.
Considering all this, the past decades make me doubt the appropriateness of the way described before to prepare forecasts and encourage me in thinking that not just data but – equally important – wider information must play a major role in the preparation of forecasts for transport projects.
Tomorrow is Already Present in Today
One may argue that history and the present already contain information on the future. Since markets are made up of the interplay between various market players or stakeholders, their actions and expressions shape today’s and future market situation and development. Market players often include port and terminal operators, logistics service providers and freight forwarders, transport operators, public authorities, business associations and consumers as well as production and trading companies. Their actions can appear at an early stage, either in the form of clear actions or expressions to a larger audience or as single and less noticeable actions and expressions to a limited audience. Actions and expressions to a limited audience are less visible but often at least equally important.
Some developments can be directly observed and develop over a longer period. These are little surprising once they unfold their full effects, such as investments in hard infrastructure including ports, railways and canals. Other developments are less visible but evolve gradually, such as changes in soft infrastructure including amendments in regulation. Visible or less visible, both developments shape the development of transport markets.
Some years ago, I came across a quotation by the futurologist Robert Jungk. Since I heard this quotation, I cannot escape it and its practical meaning on forecasts for port and logistics projects: “Tomorrow is already present in today (…), it disguises and exposes itself behind the familiar.” The meaning I derive from Robert Jungk’s statement on forecasts for, and the design of transport systems is the following: By means of actions and expressions market players may point to their future actions. Putting these seemingly hidden pieces of information of market players together can assist me assessing the probability of occurrence of an event or even a development. The approach to analyse the recent history for these various subtle signals and derive their joined meaning on the future of transport systems appears convincing to me.
Data and Information Availability
I have seen logistics service providers that build their own information systems to tap data on e.g. markets, routes, transport flows and costs from the very beginning of their existence. They combine the various pieces of data and information, derive meanings and try to react correspondingly – an approach known as data mining and predictive analytics.
However, what I cannot ignore yet, is that much information is still not available. Despite massive improvements in data and information exchange in the transport sector especially over the last decades and the huge variety and amount of information we have at our disposal today, much information is still not available or only with a considerable time lag. I expect this lack of specific information and the time lag to decline further. Nonetheless, although information that results from individual’s experience with and insight into processes and events can be shared among people, it is often not exposed to a larger public audience.
Illuminating the Context of Transport Systems
In my opinion, the best option available is to analyse the context of transport systems for these subtle signals of future actions and developments and put the individual pieces of information together into coherent future scenarios. For forecasts on for instance ports or intermodal rail terminals, at HPC Hamburg Port Consulting we make use of multiple sources of information. First, past and most recent data on operations, handling volumes and markets represent an important basis. We analyse the data for constraints, benchmark against its regional and global peer group and assess changes in market structures and development. Second, at least of equal importance are face-to-face interviews with key stakeholders from all relevant market players. In my opinion, personal interviews are an ideal method to elicit exactly these hidden pieces of information. Business intelligence technologies enable us to analyse the various sources of information and allow customers to immediately analyse their performance, competitive and market situation and directly update their forecasts. This procedure allows our customers to stay one step ahead and take advantage of emerging opportunities faster.
The importance of robust forecast becomes even more pronounced when considering that forecasts are an inevitable basis for, for example, the planning of transport concepts, traffic simulation, financial analyses, privatisation projects and cost-benefit analyses.
Eventually, what remains is the risk of failing to recognise the right diagnostic signals. I am excited to see how we can further improve our forecasts – forecasts that are robust enough to build weighty investment decisions on – even in times of unpredictability.
I would be pleased to hear your situation and to discuss how forecasting could contribute to robust operations as well as investment and location decisions in your business.
About the Author
Stephan Hofmann studied business management with focus on logistics and supply chain management, completed his PhD in economics on constraints of supply chains in southern African countries and is a transport economist as HPC Hamburg Port Consulting. At HPC, he has been responsible for preparing demand forecasts and based thereon financial analyses for both sea and river ports as well as intermodal terminals in Germany and on the African continent.