Cyclical Transportation - Research Paper Example

Cyclical Transportation Cyclical Transportation Cyclical transportation is a type of transportation that is sensitive to business cycles. The international economy and the political environment bring about the difficulties in transportation. An example of an international economy effect is the recent experienced one that created capacity shortage for to the transport industry. Business environment is also part of the downs because it determines the amount of supplies to have shipment to various parts of the globe. Example of the business environment affecting transportation is rise in piracy and insecurity, technology change and general environmental concerns. In cases of insecurity levels, transportation is at low season because no customer is willing to risk and do business as well as have his or her goods on the move. With the rise of piracy recently in sea transport, for example, many customers have become afraid of investing hence lowering the transportation business because there is no capacity to transport. The political environment can affect the transportation industry in a number of ways. Conducive political environment means there is the security and anyone can invest without fear of losing the investments. At such times, customers demand high meaning there is sufficient capacity to transport. The carrier or the shipper should be able to manage the capacity because it can be in excess of the transport assets one has (Wensveen, 2011). Transportation is cyclical in nature because of the usual down and up movement of the business. The business down movement causes capacity shortages to the shipper. Capacity shortage is a challenge to the transport industry because the fleet and some of the assets lay unused. Such asset idleness is a challenge to the shipper since it is hard to remain firm with all the operational costs compounded with less income. Profitability is hard in such situations for the carrier and chances of making losses are so high. Business up movement on the other hand increases customer demand for the shipping services. Increased customer demand is the best movement a carrier can wish for if he or she has the required assets for transportation. With a large fleet and necessary assets, the carrier can make profits to compensate for the lost business in the hard times. Managing such capacity can also be a challenge to some carrier especially the ones with small fleet and assets. Over capacity becomes a problem though not as serious as shortage of capacity. With the existing relationships, the carrier can allocate some of the shipments to other carriers if they are urgent. In case the shipments can wait for the next transporting unit, the carrier has to make the best choice ensuring there are minimal operation costs and high profits not ignoring quality of service (Lahiri, 2010). Steps for avoiding adverse effects of economic downturns Economic downturns are the moments of the recession in the business cycle. The downturns create low customer demands because business is down. Due to market uncertainty, the transport company cannot be able to know when it is coming to plan for it (Edmonson, 2012). Incapacity shortage times, there is no enough capacity to transport and by transporting the little available is a costly decision because the operating costs will not be covered as they are supposed to be included. There are three choices by the carrier to make in such a situation. One, the carrier can decide to lose business to the other carriers. Two, the carrier can use alternative carriers by paying some premium or finally, one has to look for more capacity. Letting business go to other carriers is risky because a customer who usually does business with the carrier will lose the trust and instead stick to the alternative carrier chosen. Option number two is better than one because the contracted carrier ships with the other carrier with his or her name. It is more costly than the usual carrying where one uses his or her fleet. The last option can be the best if capacity getting will not take long for some of the shipments to late. The steps below can be helped by a carried in avoiding or mitigating the adverse effects of the economic downturns (Lahiri, 2010). The first step is adopting a different view of the whole situation. The carriers should not only be concerned with today’s shortage but working on how they will manage the excess and shortage in the next 2-3 years. There is a need for a proactive plan for the future transport needs by the customer that helps in preparing for the uncertainty (Edmonson, 2012). Example, when a shortage is foreseen, the carrier can get some additional capacity from other carriers to ship together when deficit comes. Demand forecasting is another important step a carrier should take. Demand forecasting shows whether there will be an excess or a shortage. After forecasting a weak customer demand that simply interprets to capacity shortage, in the future so one can start preparing how to manage the shortage like in step number one above. Step number three is leveraging the available assets. That is possible by making sure all available assets are utilized. The capacity available should be loaded on the right asset hence making sure that the space is well utilized. The carrier can also employ combining orders strategy where they consolidate orders from one place and ship with a transporting unit whose space will be well used (Wensveen, 2011). Creation of interpersonal relationships with the suppliers is another step. Customer goods from the suppliers have to pass through the carriers for them to reach the customers. With developing close relationship with the supplier, the suppliers get to share order information, delivery information and their day-to-day performance. Such information is necessary for the carrier in planning to offer low freight charges but provide the best quality. Learning from mistakes is another step carriers take in minimizing capacity shortages and their effects. They achieve this through closed-loop process where they plan, execute, access results and adjust the plan to saving costs (Lahiri, 2010). References Edmonson, N. (2012). Technology Cycles and U.S. Economic Policy in the Early 21st Century. New Jersey: Transaction Publishers. Lahiri, K. (2010). Transportation Indicators and Business Cycles. West Yorkshire: Emerald Group Publishing. Wensveen, J. G. (2011). Air Transportation: A Management Perspective. Farnham: Ashgate Publishing Ltd. Read More