Transportation & Logistics Industry

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Introduction to the Transportation & Logistics Industry

Transportation is one of the world's largest industries. Its sectors range from taxis to trucks to airplanes, trains, ships, barges, pipelines, warehouses and logistics services.

In total, during 2007, the U.S. transportation industry (in both for-hire and not for-hire sectors, including support and repair) was about $1.8 trillion. Transportation, in its many facets and sectors, directly employs about 4.5 million Americans. 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 the intermodal use of 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. alone, total freight shipment volumes are expected to increase by 70% between 1998 and 2020, according to a U.S. Department of Transportation estimate. The amount of freight moved through ports of entry (foreign goods into the U.S.) will more than double in the same period.

Globalization has had an extremely positive effect on the transportation and supply chain business. For example, United Parcel Service (UPS) delivered 3.97 billion packages during 2007, an average of 15.8 million per business day. While the firm's U.S. package volume increased only 1.4% during 2007, its international volume was up an impressive 12.2%. Meanwhile, its revenue from supply chain and freight operations grew about 8% to $2.2 billion and profits soared in this sector.

Transportation continues to evolve globally, 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. By the beginning of 2008, it had more than 50,000 kilometers of expressways, second in terms of length to America's famous Interstate Highway system (roughly 43,000 miles or 69,000 kilometers). China's investment in new infrastructure of all types, including highways and airports, equals 9% of annual GDP according to a study of 2005 budgets.

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 sufficient airports, seaports, highways and railroads to handle commerce and passenger traffic efficiently. The amount of government funds available for roadway development is never enough to keep up with demand. For example, "The 2005 Urban Mobility Report," a study conducted by researchers at Texas A&M University, analyzed traffic patterns and delays in 85 U.S. major metropolitan areas. The study found that the total annual cost of traffic congestion in these cities was $63 billion, based on 3.7 billion hours of traffic delay and 2.3 billion gallons of fuel consumed by delays.

Globally, big changes in transportation were in the works as 2008 began. Growth in the world's economy was clearly slowing down, and the formerly booming transportation industry will slow along with it. This may provide some much-needed relief to recent shortages and high costs in such areas as shipping and trucking. Airlines were generally starting to see drops in their passenger load factors. Major trucking firms reported shrinking business in late 2007.

In fact, the biggest changes in the works are in the airline sector, where large mergers and cross-border investments are already underway. In the U.S., airline giants Delta and Northwest were attempting to put together a merger as of February 2008. Continental and American were both considering their options and possible merger partners. U.K.-based Virgin had launched its Virgin America affiliate (with a sizeable investment stake in the U.S. operations held by Virgin), and Lufthansa had acquired a minority interest in JetBlue. Overall, U.S. airlines are scrambling to set a positive stage for the future, as they are now faced with growing competition on their prized overseas routes along with higher operating costs, particularly in terms of jet fuel.