Why Is the Transportation Industry Cyclical In Nature? Essay Example

The cyclical nature of the transportation industry is grounded in the industry’s correlation with the greater economy. Namely, the transportation industry is not autonomous, but is instead fundamentally determined by economic performance. In so far as economic performance is cyclical, the effects of this pattern are clearly legible on the transportation industry.

More specifically, the transportation industry is affected by both the fundamental indicators used to gauge the health of an economy, as well as the specific actions that government takes to address the economy with the aim of increasing its growth. (Afonja, 2013) In the case of the former, for example, registered declines in supply and demand reflect themselves either positively or negatively in the transportation industry, indicating, in the negative case, less products being transported and therefore less business for transportation. (Afonja, 2013) In the case of the latter, government may enact policies, such as tax increases, which, although intended to engender more revenue for the government, force logistic planners to re-think transportation routes, and, furthermore, in many cases force planners to cancel routes outright because of excessive costs that do not yield a profit margin. (Afonja, 2013)

A further factor that needs to be mentioned is the energy sector. The energy sector is obviously a crucial sector of the economy, as well as a crucial aspect of the transportation industry and logistics more specifically. Energy prices tend to vary as opposed to being constant: these are tied to the greater status of the economy. (Afonja, 2013) Accordingly, the transportation industry will be affected by changing energy prices, because, simply put, energy prices determine how much it costs to transport the given product from point X to point Y. For these reasons, the transportation industry may be considered to be particularly “sensitive” to economic cycles.

Although the transportation industry is inevitably negatively impacted by economic downturns, this does not mean that the transportation industry cannot take proactive steps to minimize or even avoid the effect of such downturns. In essence, this minimization or aversion can be realized, in the case of the latter, by prosecuting long-term strategies that anticipate inevitable downturns, and, in the case of the former, prosecuting short-term strategies that quickly and efficiently react to negative economic changes.

When faced with a sudden downturn, the transportation industry can take various actions, such as reducing service frequency or retiring old equipment so as to effectively address abrupt lack of demand. (Coyle, Novack, Gibson & Bardi, 2010, p. 328) Furthermore, a re-evaluation of transportation routes may be in order, thereby turning the downturn into a strategic opportunity to re-think the efficacy of logistical norms that may have become engrained in the company’s thought process because of traditional ways of thinking as opposed to effectivity. (Coyle, Novack, Gibson & Bardi, 2010)

With regard to avoiding inevitable downturns, the company should retain its strategic flexibility. One of the concrete ways in which this goal can be realized is maintaining the importance of selectivity in routes that transportation companies serve at all times. (Coyle, Novack, Gibson & Bardi, 2010, p. 320) In other words, alternatives should always be available based on the industry’s sensitivity to the economy.

It should be noted that the globalization process perhaps makes such general flexibility more facile to realize than in the past. If the transportation industry must continue re-evaluate all the options it has available so as to anticipate inevitable downturns, these options increase because of the possibilities globalization offers. Economic downturn may be localized or very particular in its effects: this can be avoided by taking advantage of the possibilities to operate in different economic settings, which can provide relief in terms of the costs incurred by, for example, wage paid to workers or route-planning.

Bibliography

Afonja, F. (2013). Industry Report Card: The North American Transportation Outlook Remains Stable Amid Slow Economic Growth. Infrastructure Views. Retrieved 25

June 2014 at http://www.infrastructureviews.com/2013/05/20/industry-report-card-the-north-american-transportation-outlook-remains-stable-amid-slow-economic-growth/

Coyle, J., Novack, R., Gibson, B., & Bardi, E. (2010) Transportation: A Chain Perspective. Mason, OH: Cengage.