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Top Economic Influences on the Logistics Industry

A picture showing the connections between the economic influences on the logistics industry.

Logistics is inarguably one of the most important industries in the world. Without logistics, the flow of goods would grind to a halt, and we would face nothing but a slow decline in a wide majority of businesses and industries. However, this certainly does not mean that logistics is immune to outside influences or that logistics is something that can operate independently of its many closely-related sectors. The economy holds excellent sway over logistics, especially when it comes to how smoothly the industry can continue to function. The connections are numerous and frequently complex, but we will try to explain them better. Without further ado, here are the top economic influences on the logistics industry today.

Supply and Demand

The first way economic influences on the logistics industry take shape is through supply and demand. Obviously, the fundamental basis of the logistics industry lies in juggling these two aspects of a business. However, problems start to appear when the two become unbalanced, even if the logistics companies profit from them on paper. Prices do soar if there is too little supply with too much demand, but they also make it harder and costlier for the logistics companies to get their hands on products. This is an excellent example of why it is essential to improve supplier relationships. On the flip side, demand alone can make or ruin a logistics business. If a logistics company gets stuck with too much product which no longer appeals to the market, then they stand to lose a lot of money, which is not an easy blow to recover from.

Rising Prices

Rising prices can sometimes be a result of supply and demand misbalance. However, just as often, there can be a local or even global issue causing the price hike. A good example would be the recent pandemic and the sudden collapse of the worldwide supply chain. Even if both supply and demand existed equally, the means for logistics companies to transport the goods were gone, and in turn, prices soared. If we move past the fact that logistics companies are nearly paralyzed in this scenario, we can analyze the effects of this on them a bit better. Namely, it becomes much easier for big names in the industry to make tons of money while smaller players fumble. Due to the costs, most small companies find it hard to acquire appreciable amounts of products to move. And smaller inventories often don't pay off, which compounds losses further.

Goods being transported by ship
The cost of transporting goods has risen almost too much due to economic influences on the logistics industry.

Operational Costs

Of course, when mentioning spikes in prices, we cannot avoid mentioning another of the top economic influences on the logistics industry: costs of operation. When all the goods within a country suddenly become costlier, this of course also includes things such as fuel and work supplies. In turn, this makes it much harder for businesses to operate at a profit. Even the experts from often note how dangerous this is for small businesses. If someone is already struggling to get their business off the ground, then these additional expenses might well pull them under. Suppose we combine this with the previously discussed effects of price spikes. In that case, we get circumstances in which smaller logistics companies are almost entirely swept off the market, which would leave the 'titans' of the industry almost entirely in charge. This type of near monopoly can quickly become troubling for both the industry and its downstream consumers.

The Consumer Price Index

A piggy bank spilling saved coins
If people insist on being too thrifty, the economy and logistics suffer.

The Consumer Price Index, or CPI, is the index measuring changes in the budget dedicated to the monthly living expenses of an average consumer. In simpler terms, it shows just how much money people need to commit to practically nothing but survival. This index, therefore, reveals the current vibrancy of the economy and the spending tendencies of consumers. It should be obvious, but growth in the CPI index typically reflects growing product prices. In turn, this trend tends to panic most people and introduces an artificial dwindling of demand. People are forced to stress over their future survival. It's only natural that they will feel less inclined to part with their money even if they have enough of it. This also impacts the discernment of potential clients, who naturally want to hire the best logistics experts they can find.

Economic Stability

The last of the economic influences on the logistics industry is financial stability. This is somewhat a combination of all previously discussed points, with a few added wrinkles. The problem with discussing economic stability is that it bundles everything about state-level or even global-level economies and their impact on the logistics industry. Here we must return to the previous mention of the pandemic- because people were shuttered at home, new restrictive measures had to be taken, and income was suddenly a distinct concern, the economy took a severe hit. And with it, global logistics practically collapsed overnight, which made economic recovery more complex. To that end, even now logistics and the economy as a whole are struggling to recover, with freight rates seen record-high among many other issues plaguing the industry. Economic stability and logistics are so tightly correlated that they collapse when they separate.

A globe
The global situation reflects on every local economy and logistics industry, too.

Final Thoughts

As you can see, the subject of the top economic influences on the logistics industry is a complex one. You can hardly start talking about one without involving the others. This is much like the economy itself. Any disruptions in one part of the world are felt even more keenly in another. The connections between these forges makes it absolutely impossible for either economics or logistics to continue to operate normally if something goes wrong with the other. If the global economy wishes to recover, then the problems with the logistics industry must be solved, too. Unfortunately, this is made extra difficult when logistics requires the backing of a strong and vibrant economy. The final result is that rather than rushing headfirst into recovery efforts, the entire world is more or less forced to plod along as economics and logistics slowly nurse each other back to health.


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