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Transportation capacity up again in May; prices still climbing

Logistics Managers’ Index dips 2.5 points to 67.1

Activity ramps in second half of month (Photo: Jim Allen/FreightWaves)

Transportation capacity expanded for a second straight month in May after falling for nearly two years, according to a monthly survey. Overall activity in the supply chain remained firm during the month.

The Logistics Managers’ Index (LMI), a measure of overall supply chain conditions, dipped 2.5 percentage points from April to 67.1 in May. A reading above 50 indicates expansion while a reading below 50 indicates contraction.

The transportation capacity subindex jumped 7.8 points to 64.7. That was the sharpest rate of expansion in the data since October 2019, “as the logistics industry continues its regression towards the mean after nearly two years of rapid growth,” the report read.

The index is now 20.3 points higher than the February reading. The change is evident in FreightWaves’ Outbound Tender Reject Index. Loads being rejected by carriers have fallen to just 9% compared to readings north of 20% throughout 2021.

Chart: (SONAR: OTRI.USA). To learn more about FreightWaves SONAR, click here.

The capacity situation, however, has been bifurcated by carrier size. Small carriers dependent on load boards for freight have seen fundamentals tank as lower spot rates have been met by rising costs, notably fuel. Conversely, large fleets are still seeing contractual rate increases and many management teams say they could use additional drivers and equipment.

Transportation utilization was flat at 64.3 during the month but the rate of growth in the pricing index slowed, down 8.6 points from April to 65.3. This was the slowest rate of growth in the prices data set since June 2020. However, the trend for rates is unlikely to turn negative as survey respondents indicated a value of 68.4 in a year from now.

“Despite this slowdown, it should be noted that we are still observing a healthy rate of growth in transportation, but one that pales in comparison to the unsustainable growth rates observed in 2021,” the report stated.

Additionally, the second half of May heated up. The pricing index was 16.1 points higher in the last 15 days of the month. Capacity growth slowed and utilization ticked higher.

“While there is often some seasonal contraction in capacity around Memorial Day, the size of the change suggests there could be more underlying the change,” the report added.

Chart: LMI

Inventories growing at a slower rate

The report showed that inventory levels, while still expanding (69.3), did so at the slowest rate so far this year. The level was well off the 80.2-reading logged in February but still 10.6 points higher than a year ago. Also, the inventory growth rate accelerated 7.7 points in the second half of the month. “This means that seasonally speaking, inventories continue to increase more quickly than we would normally expect at this point of the year,” the report said.

The inventory costs subindex ticked slightly higher to 88.1. Costs have remained historically high over the last year but the composition has changed. “In 2021 costs were high due to the velocity at which goods were moving; in 2022, the costs are due more to the static buildup of goods.”

The space required to store the goods contracted for the 21st consecutive month. The subindex for warehouse capacity remained in contraction territory at 45.9, but was 5.1 points higher than in April. Capacity actually expanded slightly in the second half of the month. Amazon (NASDAQ: AMZN) “opening up 10 million square feet of warehousing space for lease” was cited as a potential catalyst.

“Despite Amazon’s temporary pause, the industrial real estate sector remains hot as firms that may have been boxed out by Amazon and other large retailers now find an opportunity to acquire space of their own.”

Warehouse utilization (72.9) stepped 2 percentage points higher and the pricing data set (87.5) was 1.7 points higher.  

“It will be important to continue observing transportation in the coming months to understand if the spike in prices and dip in capacity in late May are indicative of the freight market leveling off, or are just a reprieve in an ongoing dip,” the report concluded.

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.

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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.