Type: Economics
Pages: 2 | Words: 489
Reading Time: 3 Minutes

Why is the transportation industry cyclical in nature?

A cyclical industry is the one that goes hand in hand with the business cycle, and its performance is also sensitive to the economy in general. The transport industry is believed to be cyclical when the economy is booming, and demand for transport goods and services is also high. During the period of Economic Depression, unnecessary expenses are cut down so that the enough revenue is realized to boost transport sector.

Additionally, it is very difficult for the transport industry to cut down on the capacity and cost in a short time, and it is also very expensive to cut down on such items; this, therefore, makes it difficult to mitigate losses during the economic downturns.

In terms of capacity, what steps can transportation companies take to avoid or at least mitigate the negative effects of economic downturns like this most recent one?

In 2008, there was a slump in trade that devastated the transport industry; ports and airports reported a decline in traffic, and the shipping industry was not left behind as it was the worst hit. The transport companies therefore need to take up measures to ensure that a repeat of the downturn in the economy does not adversely affect the transport industry.

Third party logistics providers are a one-stop-shopping source for supply chain or transport services. It involves just like a General Contractor who is responsible in coordinating multiple sub-contractors to build a house but involves a supply chain, and often uses a series of different vendors.

Martin (2012) explains how the 3PLs operate during containerization of cargo by sea; the 3PLs will offer an integrated Intermodal service which includes road, rail, and barge. In the case of warehousing, the 3PLs will offer options and space that will range from the locals to the global options which can be used anywhere in the world. When using third parties, the transport companies should first determine what exactly they want to outsource and make sure the third parties have all the information that is needed to continue with their work and make sure no loopholes are left.

Emmett and Stuart represent a few benefits of outsourcing third parties. Third parties are beneficial in that; there will be advantages in tax if leasing method was used, there is more innovation and thinking outside the box. Additionally, there will be an increase in business ratios, and the costs of the company will reduce drastically.

The government can also play an important role in boosting the shipping industry to help it from grappling in times of economic downturn. It can affect the tax exemption to port related infrastructures such as container freight stations and container depots. Secondly, custom duty concessions will go a long way, concessions on imports of goods that are going to be used in erection as well as construction of ports. This way, when the recession comes striking, the shipping industry can still survive the poor economic conditions.

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