Full Steam Ahead: Firms in the US Economy Adjust Inventory for Changes in Transportation Costs But Not the Reverse

Abstract

AbstractLogistics theory suggests that transportation and inventory policies are jointly considered by managers because these costs have offsetting properties. For example, when inventory is ordered less frequently, total transportation costs are likely to be lower due to economies of scale; yet inventory carrying costs are likely to be higher. This research analyzes aggregate transportation and inventory costs in the United States from 1960 to 2013, finding that, in the US economy as a whole, inventory and transportation costs are in long‐term equilibrium. Furthermore, inventory seems to be adjusted for changes in transportation costs; however, transportation costs are not adjusted for changes in inventory costs.