Transport Industry’s Cyclic Nature
An industry is cyclical if it is sensitive to its business cycle. For a cyclical business, revenue collection is more when the economy is stable but declines when there is an economic downturn or contraction. The transport sector is an example of a cyclic industry because of its sensitivity to changes in the marketplace. The performance of the transport sector is dependent on the economic stability of a country ( Drobetz, Menzel & Schröder, 2016). For instance, people are willing to pay for long vacations when they have disposable income. In that sense, they can use any means of transport such as air transport. However, people act with caution when spending during an economic downturn. Therefore, they prefer short vacations and use the cheapest means of transportation while traveling.
Additionally, the rate of charges for traveling depends on the state of the economy, which defines the cyclic nature of the transport industry. For example, motor vehicles rely on oil products such as petrol and oil diesel to propel their engines. During the economic downturn, the prices of oil products such as diesel tend to escalate ( Singh, 2017). When there is an increase in the prices of oil products, the investors in the transport industry also increase the charges for transportation( Drobetz, Menzel & Schröder, 2016). The increase in the transport fee creates a situation where people shy away from using specific means of transport such as air, and prefer economic means, such as vehicles. During such times, citizens also tend to reduce the number of trips they make as they try to balance their budget to fit the economy ( Singh, 2017). As a result, there is a low revenue collection. However, when the economy booms, the oil products’ prices are low, and the charges for the passengers are also down. The number of people traveling increases, and so is the distance to travel. During such times, the revenue collection goes up for the transport investors.
Delegate your assignment to our experts and they will do the rest.
Capacity Management in Transportation Industry during the Economic Downturn
In 2008, the economic depression was devastating to many industries in the United States. Particularly, the transport industry felt a massive effect as many ports and airports were reporting many losses ( Jacquillat & Odoni, 2018). The transport companies, therefore, must come up with a solution to avoid any a similar impact in case there is an issue facing the economy. There are many ways transport investors can manage the capacity to minimize disruption during the economic downturn ( Jacquillat & Odoni, 2018). For instance, they can have a means of exhausting their current assets and combining orders in ways that are beneficial to the company. They can assess both external and internal assets and make use of them to reduce their spending on the new asserts. The strategy can leave them with enough money to run the operation during the harsh economic times.
Also, smart expansion can be an excellent way to manage capacity. In the 2008 depression, some areas felt the minimal impact of the economic depression. Assessing the company offering and taking notes of areas where demand can exist during an economic downturn can be significant ( Yoon, Yildiz &Talluri, 2016). An account by account review may make sense to highlight areas where ancillary offerings make sense or room exists for price increases. Services and the geographic regions that garner steady and consistent interest may afford organizations room to grow and maintain stability in an unstable economic climate.
Furthermore, making the company lean by trimming down the unnecessary operations and reducing debts are other ways to prepare a transport company for an economic depression ( Yoon, Yildiz & Talluri, 2016). Finally, they need proper preparations for the uncertainty in the economy. The economy is full of puzzles, and there is a need to have a back strategy for the downturn. Therefore, having alternatives carriers in advance, in the case of any risks due to the economy, can be the right solution.
References
Drobetz, W., Menzel, C., &Schröder, H. (2016). Systematic risk behavior in cyclical industries: The case of shipping. Transportation Research Part E: Logistics and Transportation Review , 88 , 129-145.
Jacquillat, A., &Odoni, A. R. (2018). A roadmap toward airport demand and capacity management. Transportation Research Part A: Policy and Practice , 114 , 168-185.
Singh, A. P. (2017). Keeping it simple: a comparative analysis of TFP across manufacturing industries and primary states of India. Theoretical Economics Letters , 7 (06), 1821.
Yoon, J., Yildiz, H., &Talluri, S. (2016). Risk management strategies in transportation capacity decisions: an analytical approach. Journal of Business Logistics , 37 (4), 364-381.
