In July, the Logistics Managers’ Index (LMI) unveiled a notable yet moderated decrease in transportation prices, contrasting with the sharp declines of the previous months.
During the month, the recorded price reading stood at 35.6 on the index, well below the neutral level of 50. While the descent wasn’t as steep as the record-breaking drop witnessed in May (27.9), the Tuesday report highlighted a mid-single-digit slowdown in the growth rates of transportation capacity (65.6) and capacity utilization (41.8) from June.
Significantly, the subindex for prices surged by 11.5 points from the first half to the latter half of July, mirroring a similar shift observed in March 2022 during the onset of the freight recession. The report noted that such substantial shifts in transportation metrics could potentially mark the initial phase towards the recovery of transportation markets.
Nevertheless, downstream entities, such as retailers, anticipate a continued surge in transportation capacity. The group projected a capacity score of 73.5 for the next year, whereas upstream participants like wholesalers expressed a neutral outlook for the upcoming summer.
In an unprecedented turn, inventory levels (41.9) witnessed their swiftest decline in the six-and-a-half-year history of the index. While downstream firms reported modest inventory growth (51.4), wholesalers (37.5) faced a decline in stock levels.
The report speculated that some businesses may delay restocking due to overordering in the past, leading to an overstocked situation the previous year. Additionally, the anticipation of available transportation capacity for rush orders might influence such decisions.
Notably, several companies are reverting to just-in-time inventory strategies, especially those locked into higher storage costs (warehouse leases), as per the report.
This inventory decline manifested in warehousing metrics, which exhibited cooling trends. In July, warehousing capacity (64.4) marked its highest growth rate in the dataset’s history. While warehouse utilization (52.5) expanded, the rate of growth slowed, and warehousing prices (60.6) continued to rise, albeit at a more subdued pace for over a year.The index’s historical low for warehouse prices remains at 59.
The industry has witnessed a decline of 41,000 warehouse workers over the past 13 months. The report postulated that with e-commerce stabilizing at approximately 15% of retail, the warehousing market could be approaching equilibrium after experiencing several years of volatility.
Consequently, the overall supply chain activity index recorded a new low of 45.4, indicating a third consecutive month in contraction territory.
The Logistics Managers’ Index, a collaboration among Arizona State University, Colorado State University, Florida Atlantic, Rutgers University, and the University of Nevada, Reno, is conducted in partnership with the Council of Supply Chain Management Professionals.
