Economies of scale as relating to the transportation industry

It has been very interesting eight weeks, I have learnt a lot. This week we are looking at the economies of scale as relating to the transportation industry. Just like in many other industries, in transportation, economies of scale means that as the size of transport companies get bigger, the average operational costs gets smaller. The reverse is also true. The returns projected to this scale may vary across the spectrum depending on the variables that a transport company presents. A smaller company will only be limited to a production of just what they can manage to handle. For instance, a smaller transport company cannot take on larger orders or contracts that require a bigger fleet of trucks. Therefore, economies of scale can be disadvantageous especially to these small companies that do not have the resources to fully utilize the advantages presented to them by a given market.

While on the other hand, bigger organizations take these advantages and run with them, since they are able to acquire larger fleets, have bigger facilities and hubs in different locations hence maximizing on their profits. At the end of the day, it is rather obvious that there are way more benefits of the economies of scale a lot of industries present. It is easier to take on risks as an already well established organization than as a start up. Larger companies get better deals when buying in bulk. A good example is Waymo, a self-driving/ autonomous vehicle developer, with a 600 autonomous vehicle fleet, just recently ordered 62,000 Chrysler Pacificas and 20,000 i-Pace cars from Jaguar at a relatively cheaper price than what I could pay to start my rideshare business. Therefore, with cheaper cost of producing goods and services, comes the opportunity to offer consumers cheaper goods and services as well hence a win win situation.

Reference

Rushe, D., 2019. ‘I’m so done with driving’: is the robot car revolution finally near?. Retrieved from https://www.theguardian.com/cities/2019/mar/09/im-so-done-with-driving-is-the-robot-car-revolution-finally-near-waymo

Wikibooks, 2019. Transportation Economics/Costs. Retrieved from https://en.wikibooks.org/wiki/Transportation_Economics/Costs