Why is the Transportation Industry Cyclical in Nature?

Transportation
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Response to question 1
The transportation industry is cyclical in nature because of its sensitivity to business cycles. The performance of the sector depends on the performance of the entire economy. For example motor vehicles rely on oil products like diesel and petrol to propel their engines. When the global oil prices escalate the cost of fueling increases and hence investors in the transport sector, increase the transportation fee. Due to budget constraint, people would reduce the number of trips to fit their budget, and this affects the transport sector negatively leading to low profit margins (Dartez, 2012). On the other hand, when the global oil prices reduce, the cost of fueling decreases and that compels investors in the transport sector to reduce the transportation fees. That influences the passengers to make more trips and hence leading to higher profit margins in the industry.
Transportation industry also depends on the performance of the other industries in the economy. For instance, during the summer holidays, the tourism sector usually hits the peak season. At that time, many people need to travel to various touristic destinations to enjoy their holidays. During such a period various means of transport are usually in high demand by the passengers (Dartez, 2012). The number of ticket bookings increases in airports, railway stations and even in the bus stations. Due to high demand for various means of transport, investors in the sector would raise the transportation fee and still retain a large number of customers. In the end stakeholders in the transport sector realize high-profit margins. On the contrary, during the spring season most people tend to resume work and reduce the number of journeys hence the performance of the transport sector declines.
The performance of the transportation sector also depends on the interest rates in the economy. When the lending interest rates offered by commercial banks are high, the cost of acquiring new transport vessels increases. That discourages new investors from venturing into the business and hence makes the transportation sector to perform poorly. However, when the lending interest rates are low, the cost of purchasing new transport vessels declines (Dartez, 2012). That encourages many people to venture in the transport sector making the sector perform well. The transportation sector is cyclical in nature since its performance varies depending on numerous factors in the economy.
Response to question 2
Today many transportation companies continue facing a severe capacity shortage. As the economy grows and client confidence increases, manufacturers and retailers are anxious about getting their products into store aisles and receiving docks without delays. Unfortunately, they end up incurring losses. For this reason transportation companies need to take the following steps to avoid the negative impacts of economic downturns. First they need to shift from tactical to a strategic view due to the...