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Transportation capacity tightens further, pricing climbs higher

Capacity contracts for sixth consecutive month, says November LMI report

November LMI shows transportation capacity is 'contracting at an increasing rate' (Photo: Jim Allen/FreightWaves)

The November Logistics Managers’ Index (LMI) report shows transportation prices are “increasing at an increasing rate” with capacity “contracting at an increasing rate.”

The supply chain survey of leading logistics executives shows the industry continued to grow at a rapid pace in the month, registering a 70.8% reading, down only 0.8 points sequentially. The overall index sits nearly 20 points higher than the all-time low logged in April, the height of the pandemic-related lockdowns, and is tied for the fifth-highest level since its inception.

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 key supply chain trends in areas like transportation, inventory and warehousing.

Chart: Logistics Managers’ Index, CSCMP

“The high rates of growth reported in November stem from high prices and a record contraction in available capacity. As we have previously reported, much of this growth stems from the increased demand for logistics services and infrastructure due to the new ways in which people are shopping due to the ongoing pandemic,” the report stated.

The report pointed to rising online sales, potentially 33% higher in the fourth quarter, and e-commerce being “more logistics-intensive,” as catalysts for sellers to carry more inventory, use more trucks and occupy more warehouse space, all of which keep the index at elevated levels.

The transportation capacity index stood at 35.1% during November, down 2.9 points from October, the sixth straight month in contraction territory. The last four months have registered the four lowest readings for the index over the last two years.

The transportation prices index ticked slightly higher in the month at 85.8%. The index is up 48.1 points from the April low and is 35.8 points higher than the beginning of the year. “Observing the last two years of transportation prices shows a ‘U-shaped’ trend, with November’s rate of growth representing a return to the heady days of mid-to-late 2018,” the report added.

Future expectations for transportation prices are elevated as well. The 77.9% reading for the future pricing index indicates there is an expectation for price increases over the next 12 months.

Chart: CSCMP

“Because e-commerce is growing much more quickly than predicted, it has been difficult for firms to procure the infrastructure necessary to fulfill consumer demand. This reflected in the plummeting rates of available warehousing capacity, which this month read in at their lowest-ever level in the history of the LMI,” the report continued.

The warehousing capacity index declined 2.2 points to 38%, 14 points lower year-over-year. The warehousing utilization index remained elevated at 71.1%.

“Firms are struggling to find warehousing space that is close to the consumer and will allow them to make same- or next-day deliveries. This has put additional pressure on firms to find existing urban warehouses or warehouses that have recently been infilled to replace abandoned malls or big box stores.”

The report cited a continuation of current trends after the holiday season, noting that returns of large, bulky items will tie up logistics capacity at the same time a potential vaccine is likely to be widely distributed. “Demand for logistics services is likely to continue even after the Q4 rush subsides. Retailers are expecting that record-setting online sales will lead to record-setting returns.”

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.

F3: Future of Freight Festival


The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.

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.