Question

Explain how economics is currently driving innovation in transportation markets. Who should be paying for this innovation - the government, private companies, or the consumers themselves?

Answer 1

Globalization and technological advances have brought rapid change to the transportation and logistics sector in recent years. Whether businesses are able to adapt and take advantage of those changes is a top priority for companies in the industry. From changes in the modern consumer’s needs and the skyrocketing growth of e-commerce to digitalization of the supply chain, automation technology, and the overall economic shift to the cloud, we see recent years as being a pivotal year for transportation and logistics companies.

Here are a few most important Economic trends we see impacting the industry.

The Modern Consumer

As is the case with many industries, transportation and logistics will continue to be shaped by rising consumer expectations. Those who have grown up in the age of Amazon have an inherent desire to receive goods and services instantly—putting increased pressure on transportation and logistics companies to deliver goods exceptionally fast, and at the lowest price. Consumers now demand unprecedented visibility into order status, tracking and delivery, forcing the industry to invest in new technologies and partnerships.

A Rise in E-commerce

Increasing consumer demands are fueled by the explosive growth of ecommerce. The phone is becoming the primary shopping device of consumers, according to PwC, meaning that they can literally shop anytime, anywhere. To compete, retailers must employ an logistics strategy to deliver a seamless shopping experience.

Supply Chain Innovation

Omnichannel logistics lends itself to another trend that will be prevalent in the years to come, the digital supply chain. Harnessing the power of Iot and data driven insights at various points along the supply chain offers huge potential to improve customer service and maximize efficiency. Big data and predictive analytics are empowering event-driven logistics that can account for external factors like natural disaster and war hazards which can help significantly reduce risk along the supply chain.

The economic importance of the transportation industry can thus be assessed from a macroeconomic and microeconomic perspective:

• At the macroeconomic level, transportation and the mobility it confers are linked to a level of output, employment and income within a national economy. In many developed countries, transportation accounts between 6% and 12% of the GDP. Looking at a more comprehensive level to include logistics costs, such costs can account between 6% and 25% of the GDP. Further, the value of all transportation assets, including infrastructures and vehicles, can easily account for half the GDP of an advanced economy.

• At the microeconomic level, transportation is linked to producer, consumer and production costs. The importance of specific transport activities and infrastructure can thus be assessed for each sector of the economy. Usually, higher income levels are associated with a greater share of transportation in consumption expenses. Transportation accounts on average between 10% and 15% of household expenditures, while it accounts around 4% of the costs of each unit of output in manufacturing, but this figure varies greatly according to sub sectors

No single transport mode has been solely responsible for economic growth. Instead, modes have been linked with the economic functions they support and the geography in which growth was taking place. And we do really think that government should be paying for all this innovation. It’s the responsibility of the government, not private companies to promote economic growth be it in the form of GDP or transportation.