Transposition falls down because it is too easy to solve. Although very hard for someone looking at it to work out what has been done to the original text, a computer has less of a problem. Since the letters have not been altered, frequency analysis can be used, as shown later for solving substitution cyphers, and the possibilities for encoding the message using just transposition are few enough for a computer to be able to find the original message.
It is also much more difficult for the sender to encode the message by transposition if a complicated algorithm must be used to increase security, and this is why substitution has been more prevalent throughout the history of cryptography.
However, transposition is not lost and forgotten - it is used in tandem with substitution - such as in DES, a modern cryptographic method.