TrendGround transportation security market may reach $500 million in 2008

For those interested in an in-depth look at the business aspects of securing ground transportation in the United States: Scott Greiper and Mark Sauter of New York-based Legend Merchant Bank have updated their September 2006 report “Beyond Aviation: The Emerging Ground Transportation Security Market.” The original report was written from the perspective of the capital markets, and it was aimed at entrepreneurs, technology developers, corporate management, government officials, investors, and others interested in market forces affecting this sector. It included information on products, vendors and funding for railroads, mass transit, trucking, inter-city buses, ferries and their associated infrastructure security needs. The report’s authors highlighted the fact that since 9/11, much more money has been invested in upgrading the security of aviation, and said that although some of the disparity in attention to the two modes of transportation was understandable, “Still, ground transportation appears grossly under-funded relative to aviation (and maritime) security, but we believe the current imbalance is beginning to shift and that government and industry funding for ground transportation security is poised for growth.”

Which brings us to the 2007 edition of the report (contact Legend Merchant Bank to receive a copy of the 2007 report). In a release accompanying the new report, the authors said that their predictions from last year that the government would invest more to bolster the safety of ground transportation were correct: Federal grants for rail, transit, bus and trucking security jumped from $136 million in FY06 to more than $290 million in FY07. The FY08 homeland security appropriations bill includes $428 million in such grants (President Bush said he may veto the bill). The president did sign H.R. 1, though, which became Public Law (PL) 110-53 and authorizes, but does appropriate, more than $4 billion in ground transportation security grants, including broad new support for railroad freight security, for FY08-11. The authors say they doubt whether actual expenditures will reach these upper limits, they anticipate that such grants for ground transportation will continue to grow substantially.

Since FY03, about $681 million in federal grants have flown down to states and localities. Most of the funding is committed to larger metro areas. This money allows for increased demand for ground transportation security technologies to be met, especially as local governments, especially larger ones, may well add substantial funding of their own to implement larger programs. Last year California voters approved a transportation bond measure which will provide $1.5 billion for security and safety. Northern California’s Bay Area Rapid Transit district (BART) recently announced that this funding will pay for part of a $5.4 million upgrade to its security camera system. On the East Coast, New York’s Metropolitan Transportation Authority (NY-MTA) is deploying 1,000 surveillance cameras and 3,000 motion detectors as part of a transit security program which may reach $1.2 billion, much of which will be paid for by local funds.

Greiper and Sauter write that that private corporations are also investing in security, especially technologies that produce measurable loss reduction or enhance supply chain efficiency. Some corporations, such as railroad operators, face increasing regulatory pressure to improve security, together with the always-present business reasons to improve efficiency. Other companies, such as manufacturers, are focused on improving the performance of their supply chains. For example, the Transported Asset Protection Association (TAPA) represents many high-tech corporations and other companies which require their shippers and suppliers to meet exacting security standards. TAPA, in effect, forces shippers and suppliers to invest in security in order to get business from its members. Information on the resulting security spending among these shippers and suppliers is not available, but the results are. TAPA says an audit of twenty-four of its members found they saved $483 million over five years because of these standards — an average of $20 million per company.

The U.S. ground transportation security market is complex and fragmented, and as a result it is not easy to estimate its size. It possible, though to provide some scope for those interested in the addressable market available to technology and service providers, and the report’s authors estimated last year that combined government and commercial spending on U.S. ground transportation security — excluding payroll costs but including non-maritime nuclear cargo screening — would exceed $300 million in 2006 and potentially reach $500 million in 2008. “We believe this estimate remains sound and may even be on the low side given developments over the last year,” they conclude.