The transport market continued to relax in August, according to supply chain data published on Tuesday. The Logistics Managers Index (LMI) showed capacity rising again with prices declining for the second month in a row.
Although the growth rate of transportation capacity slowed 4.8 percentage points in the month, with a reading of 64.3, the sub-index remained solidly in expansion territory. A reading above 50 indicates expansion, while a reading below 50 indicates contraction. August marked the fifth consecutive month of capacity additions, and the trend is expected to continue as respondents returned the same number (64.3) when assessing capacity dynamics 12 months from now.
The transport price sub-index fell 1.5 points to 48, which was the second drop in as many months after more than two years of growth. Lower diesel prices, down about 8% on average since July, also contributed to the drop.
The use of transport (51.6) decreased 7.7 points. The sub-index has only contracted in five months since the data set began in 2016, at the end of the 2019 freight downturn and at the start of the pandemic.
“If we see this slide into contraction territory again this fall, it would be an indicator of a cargo market in real trouble,” the LMI report reads. “Carriers are likely to have a fourth-quarter inventory buildup as a tailwind, but whether or not it is enough to stave off contraction remains to be seen.”
Inventory and warehousing underpin supply chain growth
The LMI is being supported by “robust levels of growth” in inventory and storage costs.
The overall LMI fell just one point to 59.7 in August, but it was the first time the index had fallen below 60 since May 2020 and the third month in a row that the data set was below the historical average of 65. ,3. However, rising inventories keep storage capacity limited and costs high.
Inventory levels (67.6) continued to expand in August, down from February’s record high of 80.2, but 4.7 points higher than the index’s historical average.
“The last six months have seen a concerted effort by businesses to reduce the high levels of goods that were available this spring,” the report continued. “Many retailers have worked hard and, in some cases, suffered significant financial losses to reduce inventory levels. Despite these efforts, there is still a significant level of inventory in the system.”
Inventory costs (76.8) grew rapidly again, but the growth rate has continued to cool since reaching 91 in March.
Higher levels of held merchandise coupled with low vacancy rates keep the LMI inflated.
The storage capacity sub-index (42.3) is down 4.8 points from July, marking two full years of contraction. Warehouse utilization (65.3) was down 3.5 points for the month, but is firmly in growth territory.
Lack of industrial space causes some operators to store goods in containers and trailers, creating inefficiencies in and around the facility.
“The continued growth in utilization not only represents a cost issue, it is also a hindrance to operational efficiency, as some facilities are becoming too full to allow for optimal movements within the warehouse,” the report says.
The storage price component (75) fell 1.2 points. Upstream businesses, or those at the manufacturing and wholesale level, returned a reading of 80.7 compared to just 66.7 for supply chain operators that are closer to the consumer. The difference was attributed to a lack of storage capacity at the retail level and a “scramble to house idle inventories” by wholesalers.
“The logistics industry is currently facing an interesting combination of declining consumer demand but an abundance of goods across all supply chain systems,” the report reads. “The dynamic at work is somewhat similar to what we saw during the early days of COVID when distribution networks filled with inventory due to an unexpected drop in consumer demand. This combination has resulted in the tightest warehousing market we’ve seen in years, along with the most flexible transportation market.”
The LMI is a collaboration between Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals. of supply.