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by Sean Killcarr, in Trucks at Work

megaOne of the larger trends (no pun intended) that will impact the trucking business both here in the U.S. and abroad is the growth of what’s being called “megacities” – a topic I’ve touched on before that will impact everything from freight demand and route planning on down to the very trucks needed for delivering goods and providing services to such massive enclaves of humanity.

Today, some 54% of the world's population lives in urban areas, a proportion that is expected to increase to 66% by 2050, according to data tracked by the population division of the United Nations Department of Economic and Social Affairs – which translates into an additional 2.5 billion people, highlighting the need for a successful urban planning agenda and greater attention to be given to smaller cities where nearly half of all people currently reside.

“Managing urban areas has become one of the most important development challenges of the 21st century,” noted John Wilmoth, director of the U.N.’s population division, during a press event last week to highlight 2014 revisions to its World Urbanization Prospects report

“Projections indicate that urbanization combined with overall growth will contribute to that 2.5 billion jump, with 37% of the projected growth in India – which currently has the largest rural population – China and Nigeria, in that order,” he said. “Our success or failure in building sustainable cities will be a major factor in the success of the post-2015 U.N. development agenda.”

On a global basis, New Delhi in India – currently the world's second most populous city with 25 million inhabitants – is expected to retain that spot through at least 2030, when its population is projected to reach 36 million.

The world's largest city is Tokyo in Japan with 38 million inhabitants, and while its population is expected to decline to 37 million by 2030, it will remain at the top. Shanghai in China with 23 million inhabitants, and Mexico City, Mumbai (India) and Sao Paolo (Brazil) , each with 21 million inhabitants, followed by Osaka (Japan)with just over 20 million people, round up the top five spots.

However, the most urbanized regions of the world right now include Northern America, where 82% cent of the population lives in urban areas, followed by Latin America and the Caribbean with 80% cent, and 73% in Europe, said Wilmoth.

By contrast, Africa and Asia remain mostly rural, housing nearly 90% of the world's rural population. Their urban areas are on the rise, however, and while at least 40% of the population in African and 48%cent in Asia live in urban areas, they are projected to be home to 56% and 64% urban, respectively, by 2050.

“These countries will face numerous challenges in meeting the needs of their growing urban populations,” Wilmoth noted, including for housing, infrastructure, transportation, energy and employment, as well as for basic services such as education and health care.

On the plus side, the U.N.’s report noted that providing so-called “public goods,” such as public transportation, housing, electricity, water and sanitation for a densely settled urban population is typically cheaper and less environmentally damaging than providing a similar level of services to a dispersed rural population.

That of course is where trucking comes into play, and why the future infrastructure needs of such “megacities” will be so important – especially in terms of keeping them on the right track.

That’s why projections for infrastructure spending in the U.S. – despite all the haggling occurring on Capitol Hill regarding funding at the moment – is still expected to increase.

In a report issued by global consulting firm PricewaterhouseCoopers (PwC) in late June this year (with assistance from Oxford Economics) capital projects and infrastructure spending in U.S. is expected to reach $1 trillion annually by 2025, growing by an average of just over 3.5% a year.

That being said, though, the U.S. is the world's second largest infrastructure market, according to PwC’s figures as China surpassed America back in 2009. The firm also estimates that the share of global spending in the U.S. will decline gradually over the coming decade to just over a tenth of total global spending by 2025 from 16% in 2013. kc2

Overall, PwC said that global capital project and infrastructure (CP&I) spending has begun to rebound from the global financial crisis and is expected to grow to more than $9 trillion annually by 2025, up dramatically from $4 trillion in 2012. According to the firm’s analysis, the recovery will be geographically uneven, led overwhelmingly by Emerging Asia, as spending shifts from West to East. Specifically, China's annual spending is expected to reach over three times the level in the U.S. by 2025.

At the moment, close to $78 trillion is expected to be spent globally between now and 2025 on capital projects and infrastructure. Peter Raymond, PwC's U.S. CP&I Leader, noted that underlying sector, demographic and urbanization trends will help shape which areas of infrastructure investment will grow, while significant global events or disruptions could alter these projections.

"The economic downturn negatively impacted infrastructure in the U.S. over the past few years, with total spending only just recovering to 2008 levels in 2012," he said in a statement.

“Looking ahead, relatively constrained government finances will slow the pace of investment growth in social and transportation sectors in the U.S.,” Raymond added. “However, shale oil and gas extraction will grow faster in the U.S. than in most other countries, driven by a relatively conducive policy environment. This should push total extractive investment to over $200 billion a year by 2025, and the U.S. share of total world oil and gas output from around 15% to 17%.”

PwC’s report indicates that while the U.S. extraction market will grow as social and transportation sectors slow, lower energy costs in the U.S. will boost competitiveness in heavy energy-using sectors. The report estimates that overall industrial output in the U.S. will likely be around 2% higher in the long-term than in a non-shale scenario. However, the impacts will be concentrated on heavy energy-using sectors, such as chemicals and metals.

As such, the benefit to these sectors will be much greater than the economy-wide impact, spurring faster investment in these sectors than in other high-income economies. At the same time, "new economy" sectors will also continue to thrive in the U.S., the firm said, with substantial investment in telecommunication networks, which PwC expects to increase from $77 billion in 2013 to $160 billion in 2025.

According to PwC, four main drivers of future infrastructure spending will determine the evolution of the global infrastructure market over the coming decade. They include:

  • Availability of funding and government finances: One of the key drivers of infrastructure investment is the availability of funding. Much infrastructure development is funded and implemented by the public sector, making government finance a key determinant of prospects. High public debt burdens will undermine public investment in some advanced economies.
  • Demographic factors: Demographics play a role in determining the type of infrastructure built, prioritizing education investment in some countries and healthcare spending in others. Aging populations, particularly in Western Europe and Japan, will mean an increased share of available social investment for health facilities. By contrast, in countries in Sub-Saharan Africa, the Middle East and many parts of Asia-Pacific, populations will remain weighted towards school-age cohorts for the foreseeable future, pulling resources towards education infrastructure.
  • Continuing process of urbanization: The level of economic wealth will have an impact on the type of infrastructure required. The continuing process of urbanization – as noted above in the “megacity” trend report from the U.N. – generates demand for investment in utility supply, while at the same time making it more cost effective and realistic. In China, Indonesia, the Philippines, Ghana and Nigeria, it is expected that 10% or more of the total population will shift from the countryside to cities between now and 2025.
  • Natural resource endowments: Endowments of natural resources and policy frameworks around exploiting them will also play a key role in determining the pattern of infrastructure spending. The report forecasts that the U.S., Canada and Brazil, buoyed by discovery of new reserves and an “openness” towards both private and foreign investors, will increase their share of global oil output over the coming decade. That will mean increased extractive spending.

kc"Growth in emerging markets, together with increasing urbanization and shifts in demographics, will drive the majority of investment globally. Infrastructure spending is necessary to provide the basis for security, health and continued prosperity in these economies," PwC’s Raymond stressed. "It is crucial for policymakers, citizens and businesses to understand the factors that drive demand for infrastructure investment as well as the factors influencing economies' capacity to invest."

And it will also be crucial to figure out how trucking may or may not need to change in order to handle the needs of a more heavily urbanized world as well.

To read more blog posts from Sean Kilcarr's award-winning blog, "Trucks at Work", click here.