This article presents the findings of ongoing research by Standard & Poor's Rating Services on the traffic forecasting risk.
Traffic forecasts are central to the assessment of credit risk in most toll facility findings. However, a consistent feature of toll road traffic forecasting is that figures prepared for host jurisdictions worldwide are optimistic and subject to general error.
This report uses 104 case studies to examine issues of optimism bias and error. This year it disaggregates traffic forecasting performance by vehicle type. The variability of truck forecasts was particularly high. This variability can magnify uncertainty on revenue projections given that trucks typically pay high tariffs and, therefore, make a disproportionate contribution to total project income.
The report recommends that, given the uncertainty around traffic forecasts, projects that expose lenders to demand risk will need to demonstrate financial resilience under various and rigorous sensitivity and scenario stress tests. They should also have sufficient liquidity to accommodate performance that falls short of expectations.