The US economy has been recovering from a recession crisis, and its logistics and transportation management sectors have shaped up to new realities. Other than subtle economic variations, recessions and subsequent upturns present opportunities for reviewing management practices. This paper reveals some of the considerations and changes that management practice focused on transportation and logistics and economic factors causing the changes.
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Finding out the impact of economic performance on demand and supply factors for the logistics and transportation sector will help to influence better decision making by practitioners.
This study aimed to show the impact of economic recession and upturn on transportation and logistics management. It also sought to show avenues for transport and logistics management in economic downturn and upturn.
The literature review for this research focused on logistics and transport management changes and concerns that are related to changes in the US economy. The global recession of 2008 and 2009 appeared as a focus on several studies reviewed and, therefore, is an important consideration in making inferences about these studies and their support for this research.
The review captures insights from research findings in the last seven years. The discussion is arranged according to the study’s relevance to logistics and transportation, as well as the US economy. The review highlights the causal relationship between economic performance and the management of logistics by customers and suppliers.
Scope of the logistics economic impact
The United States has several cities that serve as global logistics hubs, with the notable one being New York. The study by O’Connor (2010) shows that the centralization of logistics activities depends on the availability of infrastructure and policies. On the other hand, the logistics activities also become a vital source of economic development through attraction of related investment and use of existing ones, such as ports in economic activities that generate revenue.
Therefore, any economic effect on the attractiveness of a city affects its eventually capacity as a global city region for logistics activities. Nevertheless, the nature of the global economic recession affected cities globally, such that it was difficult to point out the loss of the logistic center status of one city.
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Logistics is an important economic sector, and performance and growth depend on the overall economic indicators. Recession leads to slumping in demand across the industries. However, sector-specific recessions may affect logistics in different ways. For example, a reduction in overall economic consumption reduces demand for oil and causes a slump in prices, which then improves the costs of doing business in transportation and logistics.
However, such outcomes cause a drop in interest in technological solutions as long-term solutions to efficiency and cost problems in logistics (Yilmazkuday, 2014). Monetary policy rules change due to recession, with the aim of stimulating economic performance affect parameters for governing logistics in an economy such that its management has to incorporate new measures into decision-making.
Thus, the lowering of gasoline prices alone does not lead to growth in logistics and transportation, unless relevant monetary policies that affect demand and supply of these services are also in place (Yilmazkuday, 2014).
Research by Wise, Kyle, Dooley, and Kim (2010) shows an increase in technology investments in transportation, especially in electric car solutions. However, this is yet to become a significant factor upsetting the dynamics of the transport and logistics industry.
As the findings by Tucci, Shin, and Benefield (2015) show, the share of revenues and growth momentum of air, road, rail, and sea transport in the US remains stable even after during the recession and only maritime transport had a significant fluctuation in revenue. Overall, the industry has been growing gradually in the last ten years.
The Great Recession and its Effect on the Transport and Logistics Management
The great recession increased the demand for efficiency in transport and logistics management. Over the last five decades, companies in the United States have relied more on trucking as a form of transportation compared to other types available. However, increased scrutiny by customers on the cost and value of transportation has led supply chain management to change. The great recession caused an increased urge for efficacy and accelerated investments in technology for reducing costs and enhancing business value (Tucci et al., 2015).
As competition increased and clients became pressed to save on their expenditure, transport service providers had to meet the new demands of the business. Client businesses needed to offer better delivery times to their end-users, while service providers needed to keep customers. Missing business would be catastrophic, and as a result, investment in efficiency systems increased. The recession was, therefore, a decisive factor in the development of transport and logistics management in the United States.
On the other hand, it also exposed laxity and inefficiencies that were in the industry. For example, prior to investments in RFID technologies and customer freight tracking solutions in road and rail transport, there was insufficient data to work with regarding the evaluation of service efficiency. The technologies and solutions now make it possible, and this has been a major effect of the recession on findings by Tucci et al. (2015).
Managing Transport and Logistics Management during the Economic Downturn and Upturn
Many businesses continue accessing the value of their independent business activities. They evaluate the contribution of these activities to their bottom line. Opportunities to stop and pursue other activities continue to be explored, and the economic downtown and uptown periods have only presented or curtailed opportunities to do so from different perspectives.
For example, many organizations have moved into outsourcing such that they are free of direct logistic management burdens, and, therefore, immune in a way to the downtown economic effects. It also follows that they are in less control of taking advantage of opportunities created in an upturn of the economy. Meanwhile, fourth-party logistics suppliers are emerging to compensate for the shortcomings of third-party logistics service providers (Min, 2013).
Therefore, a notable change in the management of transport and logistics is that there has been a tremendous growth of the 3PL industry, which also diversified to offer customized solutions for firms in different industries. Meanwhile, the management of transport and logistics has been deliberating problems that were highlighted by the economic downturn. They include the need for constant evaluation of the performance of 3PL.
Managers also have to keep on identifying logistics functions that should be streamlined and outsourced compared to the ones that must remain within an organization for maximum competitive advantage.
Coordination of outsourced logistics has since become a major field of concerns and developments focusing on communication efficiency and solutions. Meanwhile, the economic upturn has also caused deliberations by companies on contract renewals, and the establishment of long-term relationships with logistics and transport service providers picked during the recession period (Min, 2013).
Following the economic downturn, management of logistics and transportation now focuses on shipping accuracy, over-time delivery, order accuracy, frequency of customer complaints, and order cycle time. Besides, there are less notable concerns like economic value-added and cash-to-cash cycle time or asset turns.
The concerns for the management of both client and service providers show the focus is on efficiency and relationships, and findings by Min (2013) show that even the lowly ranking concern recorded a greater than median score on the level of importance.
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As the literature review demonstrates, there is a need to shift the outlook for transport and logistics management in periods of an economic upturn. The main reason is that the economic influences in this period are different from those occurring in an economic downturn. Nevertheless, investments and research into efficiency improvement, customer relationship support, and long-term business arrangement are the best approaches to use to survive during downtowns and thrive in upturns.
The US economy reacts differently to recessions, and logistics or transport in the national and international scope is affected differently. Therefore, practitioners must always review the effects of economic changes based on their business prospects both in the short-term and long-term.
To sum up, gasoline prices remain a key indicator of economic performance, and they affect aggregate demand, which eventually covers transport and logistics. However, monetary policy and scale of downturn also create pressures on customers to seek efficiency in operations and new competitive advantages, which then becomes an opportunity for transport and logistics organizations to focus on innovation.
Min, H. (2013). Examining logistics outsourcing practices in the United States: from the perspectives of third-party logistics service users. Logistics Research, 6(4), 133-144.
O’Connor, K. (2010). Global city regions and the location of logistics activity. Journal of Transport Geography, 18(3), 354-362.
Tucci, J. E., Shin, S., & Benefield, M. (2015). Logistics sustainability?: Long term technology investments and integration. Journal of Management and Sustainability, 5(2), 48-56.
Wise, M., Kyle, G. P., Dooley, J. J., & Kim, S. H. (2010). The impact of electric passenger transport technology under an economy-wide climate policy in the United States: Carbon dioxide emissions, coal use, and carbon dioxide capture and storage. International Journal of Greenhouse Gas Control, 4(2), 301-208.
Yilmazkuday, H. (2014). Gasoline prices, transport costs, and the U.S. business cycles. Journal of Economic Dynamics and Control, 45, 165–179.