Table of Contents
The Scope of Logistics’ Economic Impact
The Economy of Logistics: Macro and Micro Perspectives
Impacts of the Great Recession
Transportation and Politics
This paper attempts to explain the cyclical relationship between the transportation industry and the U.S. economy. It begins by exploring the scope of logistics activities and their impact upon the economy, and then attempts to show how the economy in turn determines the state of the transportation industry and its ability to contribute to the economy. The paper will then reveal the impacts upon the transportation sector because of the recessionary conditions beginning in 2007 and continuing until 2010. Finally, we will reveal how political partisanship has the ability to depress the health of the transportation industry by withholding needed infrastructure funds and the effect that has upon the economy.
Transportation Logistics: Politics, Infrastructure and the Economy
Logistics and transportation as a function of logistics management have a significant impact upon the U.S. economy. The inverse is also true. The economy has a significant impact upon logistics and transportation, especially in regards to the manner in which organizations manage their supply chains. The end of an economic recession in the early 1980s and persisting economic fears developed into an unrelenting pursuit of cost savings and ultimately to offshoring of many ancillary business process, including manufacturing. This new strategy development has been a significant and lasting effect upon transportation and logistics management activities on a worldwide scale. As many organizations sought significant cost savings and other advantages by moving functions abroad, the supply chain became stretched, transportation more expensive and complicated, and logistics management more important on a strategic level. However, as the supply chain was stretched and activities were increasingly offshored, the economic conditions within the U.S. became less stable.
A significant portion of the economic strength within the U.S. can be traced to the economic opportunities afforded the middle class (consumers) in this country, as it is their consumption spending that truly drives the health of the U.S. economy. When these opportunities are suppressed, so is the strength of the economy suppressed in similar fashion. Conditions that precipitate such suppressions of the economic opportunity of consumers and, in turn, the strength of the economy have far reaching implications because the U.S. economy is cyclical in nature. Consumers not only drive the economy, they pay the taxes which are used to fund the infrastructures which are the foundation of the nation’s transportation and logistics management systems.
The fact that the transport sector of the economy has had a major impact on the development and the welfare of this middle class population can hardly be argued against. On the contrary, Rodrigue and Notteboom (2012) argue that “When transport system are efficient, they provide economic and social opportunities and benefits that result in positive multipliers effects such as better accessibility to markets, employment and additional investments” and conversely, “When transport systems are deficient in terms of capacity oar reliability, they can have an economic cost such as reduced or missed opportunities” (Rodrigue & Notteboom, 2012, para. 1 economic importance section).
This paper focuses on the economy’s effect upon transportation as a function of logistics management within the supply chain and, the transport sector’s effect upon the economy, and the cyclical nature of the relationship that one has on the other. Because the economic opportunity of the nation’s populations is dependent upon efficient transport systems; which, in most cases, are dependent upon a publically-funded infrastructure; which, in turn, is dependent upon the economic strength of the populations; there exists a cyclical interdependence not unlike that which exists within most supply chains. In this sense, we can view our country in terms of a large supply chain where the economy represents the finance department, the population represents the labor, and the nation’s infrastructure is representative of the distribution network—inefficiencies in any of these areas ultimately produces inefficiencies within the other areas.
The Scope of Logistics’ Economic Impact.
Since the strength of the U.S. economy is greatly dependent upon consumer spending levels, the impact of logistics and transportation, as a function of logistics, greatly impacts the economy in several ways: direct impacts, indirect impacts, and related impacts (Rodrigue & Notteboom, 2012, para. 2).
Direct impacts. Logistics and transportation directly impact the economy by providing access to employment, adding value to products, increasing market areas. The transportation industry in particular is a major contributor to the economy because its divisions form and support the foundation upon which the economy creates value. The major divisions of the transportation sector are infrastructure, vehicles, and operations. All of which directly affect the ability of organizations to make products available where demand exists, creating place utility and adding value to products. Transport vehicles and operations provide accessibility, expand distribution networks across markets, create economies of scale, and provide income for employment opportunities.
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Figure 1. ©Hofstra University
According to Coyle, Langley, Gibson, Novack & Bardi (2008 ) logistics activities also include such activities as warehousing and storage, industrial packaging, materials handling, inventory control, order fulfillment, demand forecasting, production planning and scheduling, procurement, customer service, facility location, return goods handling (i.e. reverse logistics), parts and service support, and salvage and scrap disposal (Coyle et al., 2008, p. 39). Figure 1 illustrates the various economic impacts that an efficient logistics and transportation system has on the U.S. economy. For the supply side of the economy, transport operations create income from fares and for wages, and also create access to wider distribution networks. Access to wider distribution networks, in turn, works to link the factors of production together.
On the demand side, transport networks creates productivity gains and time and cost savings through improved accessibility to an expanded range of suppliers and consumers. Transport networks work to expand opportunities to acquire and to sell raw materials and commodities necessary for industrial and manufacturing systems. In addition, these same systems improve access to labor, especially cheap labor as seen in the rush to offshoring which emerged in the 1980s. However, this particular benefit was realized not by the country’s economy, but in other countries where labor was cheaper than that in the U.S. It did, however, result in cheaper product prices in the U.S.