A recent supply chain report shows that transportation prices have finally flipped to expansion after 19 months of contraction. This is a positive sign for the industry, as all eight components of the Logistics Managers’ Index (LMI) are signaling growth.
The LMI, a diffusion index where a reading above 50 indicates expansion and below 50 signals contraction, has been in expansion territory for five of the past six months. This growth is attributed to an increase in the restocking of inventories, particularly for retailers, following a busy holiday season. It appears that Americans are feeling more confident about the overall economy.
One of the biggest takeaways from the report is the inflection in transportation prices, which have been in contraction for the past 18 months. This is the first time in a long time that transportation prices have shown growth, signaling a potential shift in the market. Additionally, transportation utilization and capacity are both still growing, but at a slower rate than in December.
The report also highlights the potential impact of interest rate cuts on the transportation industry. Lower rates could lead to increased activity at upstream firms, resulting in larger and bulkier shipments. This could help drive further growth in utilization and prices.
Another positive sign is the increase in inventory levels, which have been in expansion for the first time in three months. This is due to companies shifting back to just-in-time merchandise strategies, rather than the just-in-case approach that was prevalent during the height of the pandemic.
However, the report also notes that there are some concerns for the future. Upstream companies, such as manufacturers and wholesalers, are cutting stock levels due to an overhang of semiconductors. Additionally, warehousing metrics are down slightly, with capacity and utilization tapering from pandemic highs.
Despite these concerns, respondents to the LMI expect growth to continue in the future. The index is predicted to stand at 62.8 one year from now, which is higher than the current reading and the index’s historical average.
Overall, this report offers evidence that the logistics industry may be moving back into a period of growth after a long downturn. However, the report cautions that a longer period of growth is needed to declare an official end to the freight recession. Nonetheless, with all signs pointing towards growth, it seems that the transportation industry is on the path to recovery.
