Why is the Transportation Industry Cyclical in Nature?
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A cyclical industry refers to an economic sector whose revenues are determined or affected by the economy’s state. In that regard, revenues increases when the economy is experiencing growth. On the other hand, the industry experiences diminished revenues when the economy stagnates or shrinks. Transportation is a cyclical industry because it flourishes when the economy grows and stagnates when it shrinks (Prentice & Prokop, 2015). A growing economy is characterized by urbanization, the rapid expansion of infrastructure, and new businesses’ creation. In times of significant development and growth, there is quick transportation of products and services from one place to another (Dartez, 2013).
Transportation industries make a lot of money moving goods between locations. During times of economic downturn, many businesses cut down on expenses to ensure that they survive the tough times. During bad economic times, people have less disposable income, and as a result, take fewer vacations (Dartez, 2013). Also, they are cautious about spending their money on leisure activities such as travel and holidays. Many people take more conservative vacations that do not necessitate much traveling. During bad economic times, many economic activities that support the transportation industry slow down (Dartez, 2013). For instance, the demand for goods and services in the construction industry goes down during an economic depression (Prentice & Prokop, 2015). Therefore, transportation companies make low revenues. Transportation is also cyclical in nature because, during depressions, unnecessary costs are cut down to raise enough money to boost the industry.
In terms of Capacity, What Steps Can Transportation Companies Take to Avoid or At Least Mitigate the Negative Effects of Economic Downturns?
One of the steps that transportation companies can take is to embrace outsourcing. Third-party logistics can be used to provide reliable and cost-effective transportation services to companies in the transportation industry. For instance, a company can outsource non-core competencies, such as transportation management from third-party logistics providers (Dartez, 2013). The benefits of outsourcing include better productivity, better results, simplification of chaos related to specific modes of transportation, and business intelligence availability for continual improvement. Also, increased business ratios, lower operation costs significantly (Thomopoulos et al., 2015).
Many third-party logistics providers embrace technology and innovation. Therefore, they provide high-quality services at a lower cost. There is stiff competition among companies that offer third-party transportation services. The competition compels them to lower their prices and provide high-quality services. This competition benefits companies because they receive better and lower-cost services. Another measure that companies should take is the adoption and implementation of technology. Technology can improve the capacity of transportation companies in various ways. For instance, the adoption of technology across multiple industry segments can reduce costs, save time, and improve efficiency.
Intelligent Transportation Systems (monitoring systems and smart vehicles) and automation are examples of technologies that companies can implement to improve their capacity and avoid the adverse effects of economic downturns (Thomopoulos, Givoni, & Rietveld, 2015). The significant advantage of automation is cutting on the cost of operation and compensation. Automation cuts expenses and improves efficiency. Many companies lay off employees during bad times to lower costs. Automation solves the problems of dealing with high employee bonuses and remuneration during economic downturns. Companies can also improve capacity by implementing new transport systems, such as acquiring vehicles that use alternative fuels (Thomopoulos et al., 2015). Telecommunication and information technologies such as cellular phones, Global Positioning Systems GPS), and Intelligent Transportation Systems (ITS) can also be used to improve capacity (Thomopoulos et al., 2015). Other technologies that can improve ability include traveler information services, smart cards, Automatic Vehicle Location (AVL), smart cars, and Commercial Vehicle Operations (CVO) systems.
Dartez, R. (2013). Transportation logistics and economic decline: Politics, infrastructure and the recession. New York, NY: GRIN Verlag.
Prentice, B. E., & Prokop, D. (2015). Concepts of transportation economics. Hackensack, NJ: World Scientific Publishing Co Inc.
Thomopoulos, N., Givoni, M., & Rietveld, P. (2015). ICT for transport: Opportunities and threats. New York, NY: Edward Elgar Publishing.