How Adopting to Modern Technology Impacts Key Financials of Transportation Firms

Looking at two different industries – the technology sector and the transportation sector, one can quickly notice that the Profit & Loss statement of technology firms benefit from the less asset-heavy operating model.

It is a common practice to compare companies belonging to the same industrial sector. However, it would be interesting to see what it is like to compare two different sectors.  For example, utilities typically have low multiples because they are low growth, stable industries. In contrast, the technology industry is characterized by phenomenal growth rates and constant change.

Therefore the question is what happens if those industries merge and transportation firms mirror the product proposition of relevant technology firms?

This kind of blurring lines is anything but far from real as those industries reinforce each other as transportation apps become increasingly part of the transportation business model while IT helps them to maximize profits through more efficient capacity planning.

So let’s compare both industries. While gross margins (both ~58%) are on par, the EBITDA margin already differs being nearly twice the percentage in technology (24.39%) as in transportation (13.41%). The gap becomes even more inherent as we look at the net margin being 18% for IT firms and 5.22% for transportation companies.

These facts combined with the already mentioned higher growth rates in technology also impacts the P/E (Price-Earnings) ratio being 30.59 for IT firms and 22.11 for transportation firms respectively.

Therefore, we should also take a look at the debt rate being 1.08 for transportation and 0.3 for technology. Now, the picture changes somewhat as fixed income investors usually seek more stable and reliable returns compared to equity investors often not caring too much about higher volatility.

Transportation firms with technology enabled-business enhancements providing more comprehensive coverage in service terms are therefore set-up well to combine the best of both worlds.

As a consequence, the leverage ratio at those combined firms may decline while the P/E ratio is likely to rise together with the margins.

The opposite effect could apply to technology firms as they now face more competition from traditional asset-based industries which are not willing to forgo higher profit margins by having to pay brokerage or software license fees to those firms without additional strategic benefits.

For this reason, transportation firms with complementary app offers may become an interesting investment target as they provide higher returns compared to pure transportation firms while still being more likely to provide similar stable returns commonly seen in the traditional asset-based transportation sector.

However, despite being convinced that on a macro-level the thesis should hold, we cannot generalize it too much and advise every investor to look at each company separately to validate whether the assumptions hold.

Share your opinions in our comment section: Would you rather invest in pure transport, pure technology or companies being a mixture of both?

Please note that this article expresses the opinions of the author and does not reflect the views of Move Forward.

How Commuters Constantly Help Transportation Providers to Boost Their Business

For years, we observed a significant increase in commuters in all areas ranging from daily business commuters to weekly or monthly commuters living in long-distance relationships or similar circumstances. But, how does this impact transport firms and how can they retain their most regular customers?

Currently, there are around 500 million commuters worldwide and it is an open secret that the growing number of commuters, is looked upon with favor as they stabilize cash flows for the respective transport firms. It is a simple calculation that with a higher percentage of regular commuters required, transportation capacity becomes more predictable thus easier to manage and optimize from a cost benefit analysis view.

However, with an increase of intermodal transportation at the same time and a growing number of alternatives, the equation becomes instable as external factors need additional investigation and customer retention gets more into focus.

With personal time constraints and health awareness on the rise as well the well-being or better said the assistance of the customer becomes even more crucial to the success of the respective transport firms.

This means that transport firms are required to enhance work-life-integration concepts enabling the passenger to effectively use his or her time during the journey either in a private or business context while ensuring sufficient relaxation options as otherwise based on the related stress level they will switch to competitors who are capable in providing that kind of service or they might avoid commuting at all.

So what can transport firms do to retain people commuting rather than relocating or changing the way they travel on a regular basis?

The most common standard in this regard is the provision of a free Wi-Fi connection during the trip. Furthermore, small snacks and beverages are often provided as well as increased leg-room or similar amenities like comfort seats against a defined surcharge.

Still, many of those advantages are a privilege to mid and long distance journeys, but can more and more be found at inner-city transportation providers as well. This is based on the fact that comfort requirements increase exponentially to the distance traveled.

Due to the competition, local transport firms now assimilate the services – for example inter-city railway providers and airlines which in result urge those long-distance transport firms to upgrade their services as well. This recently led to included limousine service transfers to the plane or concierge-like service offers, which is a tendency that is even more accelerated by the fast-track development of new technology gadgets such as personal travel apps competing more or less directly in this field as they strive to provide the best solution to the customer, too.

So, in the end transport firms may be advised best to cooperate with respective technology firms to gain a competitive edge by receiving brokered customers and access to more seamless routing across different transportation means also covering the last mile or reach of the serviced transport hub.

Driven by this kind of upward spiral, we will see an accretive number of alliances between transport and non-transport firms to integrate utmost leisure and business requirements into the complete trip and probably even beyond the commute itself.

At the same time those cooperation models will allow the transport firms leverage scale effects and focus on their core strength in a defense of otherwise skyrocketing costs for additional service provisioning.

Tell us your opinion: In the near future, what kind of services do you expect from local transportation firms?

Please note that this article expresses the opinions of the author and does not reflect the views of Move Forward.

Global Developments of Mobility and the Overriding Trend of Mobility on Demand

With the increase of congestion and environmental regulation, there is a clear trend towards using existing means of transportation more efficiently and to enhance a multitude of options for the streams of people moving from A to B.

This is where the idea of mobility-on-demand comes into play. However, a mobility-on-demand system must be designed to respond to the demand for transportation effectively (from the user’s perspective) and economically (from the operator’s perspective).

For this reason, mobility-on-demand systems have to employ multiple vehicle types – providing users with choices among combinations of cost, comfort, and functionality. For example, a user might choose to ride a bicycle to the supermarket, leave it there, and bring back a car to carry the bags of groceries.

At the same time operators will try to ensure that the left bicycle will be picked up soon again by someone else leading to increased returns on the initial investment.

The set-up behind an effective mobility-on-demand system

Keeping everything in the flow may therefore even be enhanced via means of transport to X communication eliminating non-revenue-generating times allowing drivers to hand-over the car immediately upon arrival at the destination as ride times become more predictable via those data streams.

For example, in the third quarter of 2014, a telecommunication company added more car data subscribers (500K) than smartphone subscribers (466K) or tablet subscribers (342K).

Complementary overall ride times may shorten as congestion is avoided by referring back to the available data sets concerning everyone’s route, destination and overall traffic distribution.

So what we will see is that transport will be made available upon request or even be matched to the scheduled appointments in our calendars. Furthermore, with ongoing automation and the rise of self-driving cars, the above mentioned trend will reach a new level as proper mobility is ensured all the time while the efficient use of the means of transport will support saving environmental resources and relieving inner city district inhabitants.

Politics fostering the rise of mobility-on-demand systems

For these reasons, the development towards “mobility-on-demand” could drastically accelerate by the further rise of environmental regulation and with the electrification of self-driving cars taking fully automated recharges into account as well.

This tendency is also reflected in the increasing room given to electric cars and pooled driving while increasing the supply of public transport capacities by communities around the world.

An exemplary city which clearly announced to drive the development of a respective mobility-on-demand ecosystem is Helsinki claiming to reach this target by 2020.Additionally, many other cities are following.

Derived from these first actions by municipalities, it is not the question whether mobility-on-demand will disrupt and reshape inner-city mobility, but when and who the main operators will be.

Who do you believe could be that pioneer from the industry side and why?

Please note that this article expresses the opinions of the author and does not reflect the views of Move Forward.

Transport Apps and the Long-Term Market Development – Part 3

How will the changing rules of the transportation market affect the customer and the companies? The answer lies in the rising importance of customer decisions, the extent of big data and a new era of monopolists.

There are many determinants – customer focused, economic and financial ones – that may lay the grounds for a new area of monopolistic competition where technology firms replace each other which finally benefits the customer by enhancing product quality and providing perfect competitive insight.

On the economic side the solution will be attracting investors for the business model via the customer lifetime value based valuation method. In this context it will be interesting to see if the negative interest rates currently seen in the financial markets will foster further investments in the segment of transportation and routing apps.

On the customer side we will see a clear preference to handle all objectives with a single app in the long run which is also reflected in the valuations currently leading to significant investments in technology start-ups managing to create an increasing number of relevant touch points.

A first tendency can be seen in the progressive influence and room given to smartphones replacing a peripheral IT environment. Product quality will be a driving force as the best app will be the one creating the most seamless touch points across the entire set of industries.

Competitive advantage is hereby mainly gained through data utilization driving efficient use of available capacity by leading customers’ decision processes and synchronising them with real workflows along the supply and production chains of different companies. Logistics could, however, become a driving force in creating real-time customer propositions.

An Outlook and a Comparison of Affected Sectors

As transportation may immure logistics and supply chains much faster than pure end-customer focused shopping portals or search engines, they could have a trump card to win the race against highly diversified yet internally unconnected technology firms currently pursuing a strategy of building up industry competence centres before linking them on their platform. For that I assume transport firms could have a first mover advantage in handling global chains of product delivery while developing brokerage capabilities.

Another industry which could turn out to be having a competitive advantage even though from a completely different direction is the electronic payment industry. Their strength is mainly derived from security-intense applications and the possibility to quickly connect separate touch points while validating spending characteristics. This could proof as a solid backbone for all other platforms.

However payment industry firms may play their cards best via white label solutions and acting in the back as to simulate a separation between banking functions and the actual purchases. This is best argued by the customers’ perception, awareness and especially desire for asset security and protection against financial risks such as unnecessary expenses.

Which competitor will make the cut?

For this reason crossing out electronic payments as the one taking over shopping and transportation interfaces directly or indirectly and referring to the aforementioned advantages of transportation (app) providers, I assume that they will make the cut.

The only open question is who will be faster in establishing the relevant links between the industries and building up a considerable customer base who is not just aware but fully utilizing the apps functionalities.

Coming from this perspective final power lies in the decision of the customer by opting for either model – specialised platforms which may link to more diversified ones or totally integrated platforms which rely on the supply of specialised providers and due to intrinsic requirements are more big data driven.

Tell us your opinion: What kind of mobile app would you like to have that will help you in your day-to-day lives?

Please note that this article expresses the opinions of the author and does not reflect the views of Move Forward.

Transport Apps and the Long-Term Market Development – Part 1

Will the soaring number of transportation apps benefit customer choice or will the market consolidate to foster an even more monopolistic position of IT giants controlling nearly everything? Resolution can only be found by looking at the question from different angles of market penetration approaches.

Currently we observe a “Moore’s Law – like” increase in the amount of routing and transportation apps which is mainly driven by mobile commerce roll-outs of single mobility service providers trying to give their original core business an additional boost in market share by attracting new customer segments via smartphone-based enhancements or minimizing the churn rate by staying up to date from a technological perspective.

At the same time, there is a tremendous rise of intermodal concepts developed by student groups or amateur developers mostly trying to fix problems they encountered themselves in transportation. However, most of these solutions have a clear regional focus and are far from global reach or gaining the necessary critical mass of users to stay competitive.

All this happens while traditional map focused businesses have not (fully) entered the market yet and concentrate more on routing rather than full-fledged mobility solutions.

Who Are My Customers and What Do They Need

Customers for these new types of apps are mainly drawn from the upper-right located sinus-meta-milieus, which globally is the fastest growing peer group giving intermodal travel an upside since this form highly depends on customers exhibiting a clear degree of IT affinity.

Beyond this the development is accelerated through the consumer segments leaning towards a general more social-hedonistic attitude reflected by an access trumps ownership perception of products.

Derived from this orientation of the main customer group the implication is that they are likely to choose the offer which provides the greatest elation or social coincidence over one that is purely practical.

Therefore transport or routing apps need to offer more than just a link from A to B, which will lead to an extension of one-stop-shopping concepts and relevant engagement marketing picking up that trend.

Keeping in Touch With the Customer Is Key

In return, this search for experience opens the market to many non-traditional side entries of companies originally not affiliated with any kind of transport business. For these reasons, chances are that successful brands utilize their latest technological developments such as new payment models to create additional touch points along the customer journey map resulting in total coverage if combined effectively with pre-existing app modules facilitating seamless travel and shopping experiences.

Additionally, more production focused participants of the economy 4.0 may assimilate their tools and utilize their applications in fields foreign to them in order to maximize their generic standpoint as software provider since customer contacts are core in sustaining profitability.

The importance of being the incumbent operator of customer relations can also be seen in the fact that former market leading telecommunication companies have lost their position as the business today is taken over by huge companies with various business segments who keep the customers with their respective mobile operating systems altogether.

Holding the customer contact is also the main source in generating additional revenues since this gives a significant edge about supplier activities in form of information gathering as an incremental element in creating successful product propositions.

This is vested from these data collections providing sufficient probability in incentivising people to use a certain product rather than relying on static data i.e. necessary links between available information and the AIDA marketing conception to increase sales.

Please note that this article expresses the opinions of the author and does not reflect the views of Move Forward.