Watch Now

Transportation capacity falls further and faster in October

Logistics Managers’ Index shows little letup in supply chain tightness

(Photo: Jim Allen/FreightWaves)

Transportation and warehouse capacity sank further, according to data from an October supply chain survey released Tuesday. Transportation utilization and pricing increased but at a slower rate.

The Logistics Managers’ Index (LMI), which measures activity throughout various points in the supply chain, logged a 72.6% reading in the month, 40 basis points higher than September. The LMI is a diffusion index, in which a reading above 50% indicates expansion and a reading below 50% indicates contraction.

Growth in the overall index has occurred at a level above 70%, which the report classified as “significant expansion,” for nine straight months and 12 of the past 14.

“The transportation crunch remains particularly pronounced,” the report read, with the transportation prices subindex logging in at 90.7%, down 170 bps sequentially but still at an “astronomical rate.” The index has been above 90% for seven of the past eight months.

Greater upward pressure on transportation rates is being seen by downstream entities that are closer to the consumer. That subset registered a reading of 95.5% during the month.

The one-year forward-looking index for transportation prices showed survey respondents expect rates to remain elevated going forward. The reading of future expectations was 83%, 390 bps lower but indicative that rates will continue to move higher.

“Despite this small drop, the expectations of continued transportation price increases for the next 12 months remain strong, with the future index well above the critical level of 50 that indicates expansion,” the report continued.

Transportation capacity fell further and faster in the month. The subindex fell 310 bps to 34.1%. “Our data indicates that the downward pressure on transportation capacity remains extremely strong for downstream firms in supply chain (downstream Transportation Capacity Index is down to only 27.3).”

Respondents do expect some capacity correction. The forward-looking measure showed a 55.7% reading, “indicating expectations of expanding transportation capacity for the next 12 months,” albeit off of easy comparisons as capacity has declined for 17 months now.

The warehouse and inventory subindexes reflect an environment where freight continues to flood domestic ports without the capacity required to move or store it.

Warehouse capacity (47.6%) dipped further in the month, with warehouse prices (85.8%) continuing to climb. As the availability of industrial space has fallen to historically low levels, the prices required to store freight remain stubbornly high.

“Not once in the past two years has this index entered a contraction space, thus the likelihood that prices make a significant drop is highly unlikely,” the report stated. “In addition, these pricing dynamics are also driven by overall demand in all parts of the global supply chain. Thus, unless and until aggregate demand for goods decreases, and monumental increases to capacity are seen, these prices are likely to continue their upward trajectory.”

Inventory levels (61.8%) have been growing, more so for upstream producers. “Inventory Levels are growing 10.3 points faster for upstream respondents — reflecting the difficulty retailers are having building up inventories to sufficiently meet consumer demand.”

Inventory costs (85.9%) have been increasing for more than two years with the index sitting at a reading of more than 80% for eight straight months.

“Traditionally Inventory Costs and Inventory Levels have tracked together,” the report said. “Clearly however we hit a point of divergence in October of last year, as the lack of capacity combined with record levels of consumer spending on durable goods has made it both increasingly expensive and operationally difficult to have a sufficient supply of goods to meet demand.”

The LMI is a collaboration among 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.

Click for more FreightWaves articles by Todd Maiden.

Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.