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Transportation capacity loosens modestly in December, rates remain elevated

December LMI shows transportation pricing extends torrid pace

December supply chain activity slows but remains firmly in growth territory (Photo: Jim Allen/FreightWaves)

The Logistics Managers’ Index report shows the pace of growth in several key areas of the supply chain slowed during December.

The survey of leading logistics executives showed the overall index stood at 66.7% for the month, firmly in growth territory but not as robust as November’s 70.8% level. This was the first reading in four months to register below 70%, but still well ahead of the historic average of 62.3% and the year-ago reading of 54%.

The LMI is a diffusion index wherein a reading above 50% indicates expansion and a reading below 50% indicates contraction. The survey is intended to capture the rate of change in supply chain trends in areas like transportation, inventory and warehousing.

“The dip in numbers does not necessarily represent that things are quieting down, merely that the rates of growth are slowing,” the report said.

Record package delivery volumes strained logistics networks and caused parcel companies without volume limits, like the Postal Service, to record declines in delivery times, according to the update. The increase in online purchasing, which traditionally has higher returns, and inventory restocking is expected to extend the current tightness in supply chain trends.

“[Fourth-quarter] shipments into the Port of Los Angeles were up 28.2% from 2019 with up to 20 ships waiting in line to onload goods on some days in December. This backlog is currently squeezing capacity, driving up the tender rejection rates for trucks and container rates for ships,” the report added.

The transportation capacity index was 39% in December, 3.9 percentage points higher than November and the highest level since July. However, capacity is still very constrained at sub-40% for the fifth month in a row. Transportation utilization remained high, albeit down 4.3 percentage points from November, at 65.1%.  

Transportation prices remained elevated at 85.1%. The subindex has been above 80% since August. “The strong upward pressure on transportation prices that gained momentum in the fall months of 2020 is still very strong, with the last five months having the highest transportation prices index levels recorded over the last two years,” the report stated.

Chart: Transportation Prices Index, CSCMP

Warehousing capacity surged 8.9 percentage points to 46.9% but remains in contraction territory. Warehouse utilization was down 7.5 percentage points at 63.6%, with warehouse prices dipping only modestly to 76.9%.

“Warehousing and transportation capacity could not have continued contracting at the rates we saw earlier in Q4 without every warehouse and truck disappearing entirely. Interestingly, prices are the most resilient metric we’re tracking in December, as they continue their rapid climbs,” the update said.

Chart: CSCMP

The forward-looking query to respondents returned the expectation of 62.8% for transportation capacity one year from now, implying a notable reversal in the capacity dynamic. However, utilization is expected to remain firm a year from now at 68% with prices remaining high at 77.6%.

​“While the rate of growth has declined, we are still observing significant levels of growth, and tight capacity, across the broader logistics industry. With a record-breaking volume of returns inbound and the distribution of the COVID-19 vaccines just beginning, it seems unlikely that this rate of growth will significantly slow down anytime soon,” the report said.

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.

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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.