August saw significant growth in transportation capacity, coupled with a slowdown in price increases, according to the latest Logistics Managers’ Index (LMI) report. The LMI, which surveys supply chain executives monthly, recorded a reading of 56.7 for transportation capacity in August, marking a 5.8-point increase from July and the highest level since May. In this index, readings above 50 indicate expansion, while those below 50 signify contraction.
The report suggests that this increase in capacity could be linked to smaller carriers returning to the market as freight rates improve. This trend is also driven by expectations of a seasonal uptick in freight demand heading into the fall.
“Signs of new life in the freight market, along with the anticipation of the traditional demand surge following Labor Day, are likely encouraging some of the sidelined capacity from the past two years to re-enter the market,” the report explained.
Transportation Pricing Eases, But Expansion Continues
While transportation capacity grew, the pace of price increases slowed. The transportation prices subindex dropped by 2.2 points to 61.6 in August, marking the first time since April that this metric didn’t rise sequentially. However, despite this dip, pricing remains in expansion territory and is expected to grow further in the coming year, with respondents forecasting a price index of 76.6 in 2024.
“The prices are still nowhere near the highs we saw in 2020-2021, but this marks a noticeable shift from the prolonged contraction period that lasted from July 2022 to December 2023,” the report stated.
Transportation utilization, another key metric, continued to expand with a reading of 59.5 in August. This figure has remained relatively stable, fluctuating within a 4.5-point range throughout the year.
Logistics Industry: Steady Growth Amid Inventory Shifts
The overall LMI held steady at 56.4 in August, reflecting the ongoing, though slow, expansion of the logistics industry. While the index has remained in expansion territory since December, it is still below the all-time average of 61.8. A year ago, the LMI stood at a lower 51.2.
One significant shift in August was the resurgence of inventory levels, which increased by 6.1 points to 55.7. This marked a return to expansion after three months of contraction. The report indicates that businesses are building up inventories in anticipation of fourth-quarter demand, signaling a return to more traditional seasonal patterns that had been disrupted since the COVID-19 pandemic.
“This suggests firms are gearing up for Q4 after running down inventories earlier in the year,” the report noted. “This return to pre-COVID seasonality reflects more stable patterns across supply chains.”
A closer look at the data revealed a disparity between upstream and downstream companies. Manufacturers and wholesalers, classified as upstream firms, posted an inventory reading of 59.4, while retailers (downstream companies) returned a lower reading of 46.3. The report suggests this gap may reflect retailers keeping lean inventories to manage costs while their upstream suppliers are building up stock in anticipation of future orders.
Additionally, freight congestion at ports could explain some of the differences in inventory levels between the two groups, which could be a positive indicator for future freight demand as goods awaiting shipment are eventually moved inland.
Warehouse Capacity Expands Amid Shifting Inventory Dynamics
Warehouse capacity also saw a notable increase, with a 5-point rise to 59.5, the highest reading since March. The report attributes this increase to lower inventory levels at downstream firms, freeing up warehouse space. However, warehouse prices also rose, climbing 2.8 points to 63.8.
Even though warehouse prices have decreased from the peak levels of two years ago, they remain firmly in expansion territory. Respondents expect warehouse prices to continue rising over the next year, with a projected index of 68.8.
Warehouse utilization remained stable in August at 57.6, and inventory costs climbed by 3.3 points to 69, marking the continued upward trend in inventory-related expenses, which have stayed above 60 throughout the year.
Conclusion: Transportation and Logistics Showing Steady Growth
Overall, the LMI data paints a picture of steady growth in the transportation and logistics sectors. As transportation capacity expands and price growth slows, businesses are preparing for the upcoming surge in demand, particularly in the fourth quarter. The resurgence in inventory levels and the increasing availability of warehouse capacity suggest that supply chains are stabilizing after years of disruption.
The LMI, a collaborative effort from Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno, is conducted in partnership with the Council of Supply Chain Management Professionals. The index has become a reliable barometer of trends in transportation, warehousing, and inventory management, offering valuable insights for industry players navigating the evolving landscape.
