The Importance Of Transportation Industry

1089 Words5 Pages
During the 1990s and the first part of the 21st century, the high availability and low cost of transportation services relative to the cost of holding inventory encouraged organizations to aim for fast, frequent delivery to customers (Russell). However, certain factors have changed in the last decade, and companies are questioning their previous strategies. Companies are dealing with volatile, escalating oil prices and an imbalance of supply and demand for freight transport services. These have led to high transportation costs, significant enough to bring in a change of supply chain strategy. Oil accounts for 98 percent of energy consumption in transportation. Most modes of transportation are still largely dependent on fossil fuels, particularly diesel fuel (Urban). According to the U.S. Energy Information Administration, the price of crude oil is the most significant factor influencing changes in diesel prices (EIA 2012). Crude prices have risen significantly in an inconsistent pattern since the mid-2000s (EIA 2012). Therefore, as oil prices escalate, the importance of transportation economies of scale by making larger and less-frequent shipments increases. In addition, trade-offs between inventory and transportation costs become more important (Simchi-Levi). An equally influential factor in transportation costs is the demand-supply imbalance of freight transport services. This is a consequence of trade growing faster than the availability of transport services to such an extent that there are issues of congestion and capacity constraint in the United States. The remarkable growth in U.S. international trade in the last 10 years has resulted in rapid growth of traffic volumes throughout the nation's transport system, and this t... ... middle of paper ... ...and labor on designs solely for marketability and production, managers should focus on the optimizing product design and packaging. A popular approach to inventory supports minimizing inventory costs at the expense of transportation costs with small and frequent shipments. However, in this environment where transportation costs are high, managers must adapt and consider shipment size, facilitating the strategy change from lean inventory to a hybrid transport/inventory strategy (Russell). High transportation costs are dependent on macroeconomic factors such as oil prices, which affects fuel prices, and the availability of transportation, which is based on the amount of trade and transactions in both the local and global sector. Both of these factors do not seem to be slowing down anytime soon. Therefore, it is imperative that companies adapt to the course of change.
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