Introduction to the Transportation, Supply Chain & Logistics IndustryTransportation is one of the world’s largest industries. Its sectors range from taxis to trucks to airplanes, trains, courier services, ships, barges, warehouses and logistics services.
In total, during 2011, the U.S. transportation industry (in both for-hire and not-for-hire sectors, including support and repair) had revenues of about $1.82 trillion, according to Plunkett Research estimates. At a bit more than 10% of America’s economic activity, transportation is remarkably efficient, considering the fact that it is a vital service to every other sector of the economy. In fact, thanks to increasing use of advanced information systems and such strategies as intermodal containers (sending freight via containers that are easily transferred from ship to rail car to truck as needed, without repacking), the transportation industry’s productivity is excellent.
In the U.S., employment in the transportation and warehousing sector totaled 4.292 million people in 2011. To put the size and scope of the industry in perspective, this vast pool of workers helped to facilitate, among other things, 684 million domestic airline passengers, $200 billion worth of truck transport services and $1.48 trillion in U.S. exports.
The global financial crisis resulted in a significant slowdown for the transportation industry. However, the global transportation sector rebounded sharply in 2010. High load factors were enjoyed by airlines, shipping firms and courier companies. Global trade in goods has a direct effect on transportation, and by the beginning of 2011, trade had rebounded to pre-recession levels.
However, for 2012-13 challenges loom for transportation in many ways. To begin with, economies in Europe are flat, and trade, which results in transportation needs, has suffered. At the same time, as of early 2012, economic growth had slowed considerably in the important emerging nations of Brazil, India and China. Also, soaring oil prices as of March 2012 may put a damper on profits as fuel costs are rising dramatically thanks largely to turmoil in the Middle East.
Financial results at global shipping giants FedEx and United Parcel Service (UPS) are good indicators of the health of transportation revenues in general. For its second fiscal quarter, which ended November 30, 2011, FedEx reported revenue growth of 10% from the same period of the previous year.
Over recent years, globalization placed intense new demands on the transportation and supply chain sector. For example, UPS offers delivery to more than 200 nations worldwide (including every nation in the world where the firm is not barred from doing business due to U.S. government embargoes), and international revenues have been key to its growth. UPS’ total revenues rose 7.2% during 2011 to $53.1 billion.
Transportation continues to evolve, no matter whether the type of transport involved is on the road, on the sea or in the air. For example, China had only about 200 kilometers of expressways in 1989. Today, it has a massive system of state of the art highways surrounding the nation’s largest cities. India, the world’s second most populous nation, is woefully behind in transportation infrastructure, especially highways, but has hopes to dramatically boost construction in this regard, with some funding to come from public-private partnerships. Other emerging nations, including Brazil, must focus on infrastructure development as well, including ports and airports, or risk seeing their economic growth derailed. Brazil took steps in 2012 to improve its aging major airports by selling a majority stake in three of them (in Sao Paulo, Campinas and Brasilia) to private operators who will make massive investments to modernize them in time for Brazil’s 2016 Summer Olympic Games. The growth in Brazil’s transportation needs has been typical of that in other rapidly emerging nations. Brazil’s air traffic rose by 118% from between 2003 and 2010, nearly three times the global average.
The information age, with its introduction of sophisticated databases that can track inventory levels and shipments on a global basis via the Internet, has created vast transport and logistics efficiencies. As a result, supply chain technology has been one of the fastest-growing segments in the information field.
Next, the rapid adoption of outsourcing has led many companies, when shipping is vital to their businesses, to turn to logistics services providers for all manner of shipping support, including warehousing, scheduling and distribution services. The sectors of transport, supply chain management and logistics services are permanently intertwined, creating efficiencies once undreamed of in the transportation arena.
All nations worldwide face a daunting task in maintaining airports, seaports, highways and railroads that can handle commerce and passenger traffic efficiently. The amount of government funds available for roadway development is never enough to keep up with long-term needs. For example, researchers at Texas A&M University’s Texas Transportation Institute estimate that traffic delays cost the U.S. economy $115 billion in 2009 alone, thanks to 4.8 billion man-hours lost to frustrating traffic slowdowns.
One of the biggest challenges facing the global transportation sector over the mid- to long-term is a focus on lowering carbon emissions and enhancing energy efficiency. (In the U.S., the transportation sector is estimated to create 32% of all carbon dioxide emissions.) Airlines have placed large orders for fuel-efficient jets like Boeing’s new 787, promising efficiency gains of 15% to 20% per passenger mile. Container ship operators are under intense pressure to reduce contamination and emissions while in port and at sea, and the latest designs, such as Maersk’s massive new Triple-E class of ships, are making huge strides in this regard. Automobile and truck manufacturers are struggling to respond to demand for fuel-efficient vehicles.
Tremendous strides in green technology are also being made throughout the transportation services and transport equipment sectors. Lee Schipper, a Senior Engineer at the Precourt Energy Efficiency Center at Stanford University, points out that air transportation in developed countries today uses 50% to 60% less energy per passenger-kilometer travelled than it did in the early 1970s, and trucking uses 10% to 25% less fuel per ton-kilometer. Additional developments in transportation include the use of natural gas and electricity to fuel public transportation and the development of energy-efficient light rail.
Meanwhile, consumers and government transportation agencies worldwide have a renewed interest in high-speed trains and other forms of rapid transit. Trains in many parts of the world are enjoying boom times. Also, rising fuel costs may compel high numbers of consumers to turn to buses and other forms of mass transit for their commutes, leaving their gas-guzzling cars at home.
Another massive change is the growing interest of governments in outsourcing their transportation infrastructure to private operators and private ownership. Governments are short of cash. In some cases, they are selling or leasing toll bridges and highways to private operators, reaping cash windfalls in the process. (Chicago, Illinois, infamously sold a long-term lease on rights to collect funds from its parking meters, reaping $1.16 billion in cash up front, much to the chagrin of the city’s residents.) Elsewhere, governments are outsourcing their long-term highway development needs to private operators who will build new toll roads, relieving government of the investment burden while potentially creating large profits for the private operators.
Government economic stimulus plans promise increased investment in transportation infrastructure, including improvements to railroads, highways and bridges. In the U.S., for example, the February 2009 American Recovery and Reinvestment Act provided the following new funds for transportation: $8.4 billion for public transit projects, $8 billion for high-speed rail, $1.3 billion for Amtrak upgrades, $27.5 billion for highway infrastructure and $1.1 billion in new airport grants. However, the fact that this funding would be spread out among the 50 states limits its impact on any one form of transportation. For example, the $8 billion allowed for high-speed rail is not enough to fund the numerous point-to-point rail projects that many states have been considering, such as an Austin to Dallas, Texas route or a Los Angeles, California to Las Vegas, Nevada route. Much higher funding in a more focused manner would be required to implement significant changes in American transportation. Meanwhile, many observers, along with numerous government leaders at the state level, doubt that high-speed trains could ever be financially viable in the U.S.
The Chinese government unveiled a $586 billion economic stimulus package in November 2008 that was largely earmarked for highways, railroads and airports. Major projects include a $17.6 billion passenger rail line in northwest China; a $22 billion network of freight rail lines in north central China; and a $24 billion high-speed passenger railroad from Beijing to Guangzhou. Typical of China’s ability to implement government projects at a rapid pace, many of the projects came on line in short order. However, quality problems in the new high speed rail lines have shown up, including a major, tragic train wreck in mid 2011 that killed dozens of people and injured about 200.
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Video Introduction to Transportation, Supply Chain & Logistics Industry