Essay Sample on Cyclical Industries: Sensitivity to Business Cycles

Introduction

According to Kehrig (2015), a cyclic industry can be defined as a sector that is extremely sensitive to business cycles. In a significant deal, however, these sectors are influenced by the economy of the country. This is because they are extremely sensitive to dooms and booms of an economy. For example, when a state is in a recession cyclical enterprise, it is either positively or negatively affected (Nager & Atkinson, 2015). The transportation industry is among other sectors, that are quite cyclic. Where the economy is developing while commodities transportation is on the increase, the transportation industry appears highly cyclic. Therefore, it is essential to comprehend the reason why the transportation sector is cyclical in nature.

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One of the most significant reasons for the cyclical nature of the transportation industry is its sensitivity towards business cycles. A sector's performance relies on the performance of the whole economy. For instance, most vehicles depend on oil commodities such as petrol and disease to drive their engines. When oil prices in the world market increase, the expenditure of fueling vehicles also escalates. This, however, will force stakeholders in the transportation industry to raise transportation fees. Because of the budget constraint, individuals would decrease the number of trips to match their budget, which adversely influences the transportation industry resulting in decreased profits (Nager & Atkinson, 2015). When the price of oil, on the other hand, decreases in the world market, the expenditure of fueling reduces, which forces stakeholders in the transportation industry to lower transportation fees. Therefore, this affects passengers and ensures they undertake more trips resulting in higher profit margins in the transportation sector.

Another reason that may be attributed to the cyclical nature of the transportation industry is due to oil price fluctuations. The prices of fuel are unpredictable hence, any change in the prices will impact the global economy. Thus, many industries, whether the transport or manufacturing sector, rely on fuel. A decline or rise in the price of fuel, therefore, influences not only the transportation sector but also a country's economy in general. Thus, fluctuations in the price of fuel will significantly affect its cyclical nature.

Additionally, government regulations can also be used to explain the cyclical nature of the transportation sector (Kehrig, 2015). The transportation industry is significantly affected by laws and regulations formulated by a particular government, and thus such alterations fail to consider their influence in the transportation industry. For example, economic booms and downturns due to government regulations affect it. This means that during economic growth, the transportation sector tends to gain as a result of increased revenue. Individuals may, in turn, spend more on trips and vacations (Drobetz, Gounopoulos, Merikas & Schroder, 2013). During an economic recession, however, the transportation industry may suffer as a result of decreased revenue.

The transportation sector also relies on the performance of other sectors with the economy (Nager & Atkinson, 2015). For example, in the summer season, the majority of the tourism industry reaches its peak. Thus, at this period, most individuals want to travel to different touristic destinations with intentions of enjoying their holiday. Means of transportation in summer holydays have, in turn, high demand due to high number of passages. Thus, stakeholder in transportation sector may increase transportation fees as well as retain a significant number of clients. During spring, on the other hand, individuals more ap to resume work and decrease their journey. Therefore, the transportation industry cannot be studied without considering performance of other sectors.

In the occurrence of an economic downturn, approximately ever company may be affected while the best position will emerge successfully. The majority of companies also have a responsive tendency when faced with economic adversities rather than a proactive tendency which they can preserve when in hardships or during the good times hit (Drobetz, Menzel & Schroder, 2016). Therefore, transportation companies make take some essential steps to evade the negative impacts associated with economic downturns. Initially, they should focus their energy on their clients by offering a persistent as well as an open communication channel. This is because customer service is concerned with offering clients what they desire, at the right time, and appropriate quality. Clients will more probably remain with such companies even in economic hard times. Therefore, having a solid customer base will aid supervisors with demand and supply forecasts by leading them to an effective response to the current market. Also, as a second step, companies should streamline the current supply routes. This would help them evade holdups when suppliers stop operating. They will also be able to recognize risks in time. Therefore, this would ensure that the reaction time is greatly reduced while the broken routes may be rapidly be reconnected.

The third critical step that companies should take is undertaking innovative practices. When innovative practices are integrated into a flexible supply chain, they may facilitate companies to handle market volatility (Drobetz,Menzel & Schroder, 2016). This is because innovation may aid them in staying ahead of their main competitors despite the economic struggles they may be experiencing. The fourth step that companies should take is analyzing inventories and personnel to ensure they better fit the present market environment. For instance, an updated human resource strategy may help companies in recognizing employee expenses that will enable them to arrive at a precise cost-product ration. Besides, inventory ought to be decreased to provide the cash needed in situations of financial difficulties. This, however, should be both a reaction to economic downturns as well as adopted as a component of standard, particularly under smart operations. Companies should ultimately start positioning themselves for market improvement (Drobetz,Menzel & Schroder, 2016). A crucial aspect of this step is the development of alliances, which may set participating companies on the path to success. Therefore, if companies want to mitigate or avoid severe influences of economic downturns, they should adopt these steps.

References

Drobetz, W., Gounopoulos, D., Merikas, A., & Schroder, H. (2013). Capital structure decisions of globally-listed shipping companies. Transportation Research Part E: Logistics and Transportation Review, 52, 49-76. DOI: 10.1016/j.tre.2012.11.008

Drobetz, W., Menzel, C., & Schroder, H. (2016). Systematic risk behavior in cyclical industries: The case of shipping. Transportation Research Part E: Logistics and Transportation Review, 88, 129-145. DOI: 10.1016/j.tre.2016.01.008

Kehrig, M. (2015). The cyclical nature of the productivity distribution. Earlier version: US Census Bureau Center for Economic Studies Paper No. CES-WP-11-15. DOI: 10.1016/j.tre.2016.01.008

Nager, A., & Atkinson, R. D. (2015). The myth of America's manufacturing renaissance: the real state of US manufacturing. Information Technology & Innovation Foundation. Retrived 27 October 2019, from https://itif.org/publications/2015/01/12/myth-america%E2%80%99s-manufacturing-renaissance-real-state-us-manufacturing.