Businesses that aid in the transportation of people or commodities, as well as those involved in developing such infrastructure, are included in the transportation industry. According to the Global Industry Classification Standard, transportation is a division of the manufacturing sector.

Air freight and logistics and transportation infrastructure are all part of the transportation industry. Air freight and logistics, shipping, shipping services, marine transportation, railroads, trucks, airports, motorways, railroads, and maritime ports and services are all subsets of the transportation industry.

Transportation Sector Explanation and Examples

Companies' stock performance is extremely vulnerable to earnings changes and transportation services costs. The price of gasoline, the cost of employees, the demand for services, international and national politics, and government regulation are all major elements in determining a company's bottom line.

It's important to note the interrelated nature of several of these elements. For instance, if the United States government enacts rules that make it harder for people to obtain their commercial driver's license, then the number of available drivers would decrease, and the price of employing drivers will rise.

The cost of driving is heavily impacted by the price of oil and is a crucial component in the transportation industry. A trucking company's earnings and stock price might take a hit if the price of gasoline and other fuels goes up.

The Functioning of the Transportation Industry

There are many subsets of businesses operating in the transportation sector.

• Companies that offer logistics services that rely on aircraft carriers are classified as "air freight" companies.
• There are many different types of businesses that fall under the umbrella of "aviation services." Still, the most common ones include those that provide or repair airlines, air traffic control systems, helipads, and landing strips.
• Shipping firms that move cargo or passengers via waterways are marine transporters.
• Highway and motor carriers are businesses that use roads and highways to convey passengers and cargo. Companies providing public transit would also fall under this heading.
• Companies that move products or passengers by rail are called "freight railroads."
• Providers of transport, storage, and delivery services for mail and packages
• Companies that work on the nation's transportation infrastructure (construction, maintenance, repair, and support) fall under this category.

Advantages

It's smart to put money into something you're already familiar with. You could feel more at ease investing in transportation stocks since the names of the firms involved are so well-known.

In general, transportation firms' fortunes follow the economy's ups and downs. Using these cycles as a guide for timing stock market gains and losses is possible.

Downsides

Even while the industry is cyclical, knowing when a downturn is coming can be difficult. For instance, the transportation industry was severely impacted by the economic downturn of 2020. As the three-year moving average of the DJTA demonstrates, this sector often experiences steep reductions during economic downturns. Increasing oil prices can affect the transportation industry because many cars rely on oil for fuel.

The Implications for Individual Investors

Despite possible cyclical ups and downs in the transportation sector, factors like the growth of internet commerce may provide long-term support for the business. Investing in transportation companies might be a safe bet in the long run due to our reliance on them, particularly if you choose more secure investment instruments like exchange-traded funds.

How To Put Your Money in the Transportation Industry

One can invest in the transportation industry using exchange-traded funds (ETFs) like the the S&P 500 Transportation Select Industry Index Fund, or by studying individual firms. To put your money to work in the stock market, you'll need the services of an investment firm or a broker like TD Ameritrade or Fidelity.

When investing, remember the hazards involved. Stocks have the potential to yield bigger profits, but they are often riskier and need the investor's more vigilant monitoring and management. Although ETFs and index funds are less risky than buying individual equities, their returns may be lower over the long run.

Dow Jones Transportation Average Index

A price-weighted index of 20 transportation companies listed on U.S. exchanges, the DJTA is a component of the Dow Jones Industrial Average. More specifically, Charles Dow, co-founder of Dow Jones & Company, initially calculated the DJTA in 1884.

Nine railroad businesses and two non-railroad corporations made up the index at its inception, reflecting the railroads' preeminence in the transportation industry in the United States in the late 19th and early 20th centuries.

The index has expanded to incorporate other modes of transportation than railways, such as airplanes, trucks, ships, messenger services, and logistics firms.