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The Cyclic Nature of the Transportation Industry
The transportation industry is one of the critical pillars of various economies across the world. As an industry, the transport sector has positioned itself at the epicenter of economic activities because people and goods have to move from one point to another. The transportation industry is cyclic. This means that it is built in a manner that its performance is directly proportional to that of the economy (Prentice & Prokop, 2015). It has to remain sensitive to various elements of the business cycle that include the expansionary, peak, contraction, and trough phases. The expansionary phase is characterized by growth in productivity, lowering rates of unemployment, as well as a rise in stock markets due to an increase in discretionary income that often boosts the spending power of consumers. Peak is a phase when the economy has fully expanded, thus paving the way for the contraction stage characterized by a significant reduction in income rates and productivity levels. If poorly managed, this phase can easily lead an economy to experience a recession because of a low Gross Domestic Product (GDP) (Prentice & Prokop, 2015). The final phase often provides the economy with the necessary footing and direction in anticipation of starting the cycle afresh.
A cyclic industry operates in such a way that revenues tend to be high when the economy is doing well and expanding, while they are lower in periods when downturns and contraction periods are being experienced. During downturns, consumers often prioritize their expenditure by eliminating nonessential goods and services, thus leaving businesses in the transportation industry facing huge losses in terms of revenue (Pappas & Bregoli, 2016). For example, a slight increase in the global oil process has a direct impact on consumers because they will have to pay more for transport services. This can easily lead people into taking fewer trips and vacations. As a way of dealing with this kind of volatility, such businesses choose to lay off employees when economic times are bad but when the situation improves, they reinstate them and compensate for the lost income through bonuses (Prentice & Prokop, 2015). One of the main factors behind the cyclic nature of the transportation industry is the fact that when the economy is doing well, the willingness of people to travel and take vacations is often higher due to an increase in disposable income (Prentice & Prokop, 2015). In turn, when the economy is doing badly, people choose to be more conservative about their spending by going for vacations closer to home, thus traveling less.
Steps Transportation Companies Can Take to Address the Negative Effects of Economic Downturns
One of the challenges affecting the global transportation industry is the lack of adequate capacity by companies about avoiding or mitigating the negative effects of economic downturns. Economic instability can easily cripple the operations of a transportation business if the right measures for preventing or mitigating the negative effects are not in place (Pappas & Bregoli, 2016). During the recent economic downtime, transportation businesses were forced into costly decisions in a bid to remain as profitable and competitive as possible. This left many companies incapacitated in terms of meeting the demand for transport services when the economy started improving. Many have ended up missing business opportunities because they did not have an effective strategy in place to caution their business when hard economic times hit. One of the most effective steps that these businesses can take to address this challenge is abandoning a tactical view of their business in favor of a strategic one (Pappas & Bregoli, 2016). Due to the cyclic nature of the transportation industry, a shift in the approach used by managers is needed because short-term strategies are not effective in strengthening the capacity of a business to manage shortages and heightened demand for services. A strategic approach to business operations also allows managers to exercise smart expansion into areas and regions that have a greater capacity to mitigate the negative effects of a recession (Prentice & Prokop, 2015). In addition, the strategic incorporation of technology into business operations helps to increase the capacity for identifying and planning for future transportation needs.
Another effective step that can address this challenge is leveraging existing assets to their greatest capacity. The ability of transportation businesses to remain competitive is dependent on their willingness to assess their assets and establish whether they are being utilized to their maximum (Pappas & Bregoli, 2016). A business needs to ensure that the cost of operations generates as much revenue as possible. For example, they can assess if their trucks carry maximum load capacity, as well as explore the possibility of combining orders in a bid to reduce the cost of transportation. Another effective step is forming collaborative relationships with different suppliers (Prentice & Prokop, 2015). This step is necessitated by the existing web-based technologies that allow a business to develop collaborations with suppliers to improve the efficiency of crucial processes such as ordering, purchasing, as well as sharing information relating to shipment and delivery of goods.
References
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Pappas, N., & Bregoli, I. (2016). Global dynamics in travel, tourism, and hospitality. New York, NY: IGI Global.
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Prentice, B.E., & Prokop, D. (2015). Concepts of transportation economics. New York, NY: World Scientific Publishing Company.
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