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Transportation, warehouse capacity lacking, costs soar in November

Logistics Managers’ Index shows supply chain tightens further

Lack of space, capacity sends supply chain costs higher in November (Photo: Jim Allen/FreightWaves)

A key supply chain report published Tuesday showed further growth and tightening during November. The Logistics Managers’ Index (LMI), a survey measuring activity throughout the transportation, logistics and warehousing sectors, expanded 80 basis points from October to 73.4%.

The LMI is a diffusion index, wherein a reading above 50% indicates expansion and a reading below 50% indicates contraction.

“Overall growth has now been over 70.0 — a level we would classify as significant expansion — 10 months in a row and 13 of the last 15,” the report read. The outliers were mid-60% readings in December and January, which were more of “a function of inventories being sold off” during the 2020 fourth quarter.

The transportation capacity subindex remained in contraction territory at 39.7% but 560 bps higher sequentially. For 14 out of the last 16 months the dataset has registered a depressed reading in the 30s. However, survey respondents are hopeful for an increase in capacity within the next year. The forward-looking prediction registered a reading of 58.5% during the month, firmly indicating an expectation of future capacity expansion.

The transportation utilization component jumped 510 bps to 72.6% and was notably higher for upstream companies like wholesalers and distributors, which were rushing to get inventory into position ahead of the holidays. Upstream respondents returned a reading of 82.9%, implying “upstream suppliers are heavily utilizing any available transportation to fill up the fulfillment centers and shelves of their downstream customers (retailers).”

Many retailers noted strong year-over-year inventory growth, which outpaced sales growth, in the fiscal third quarter that concluded at the end of October. Concerns over merchandise availability and transportation capacity prompted the group to order holiday goods much earlier than normal so they would be stocked for the busiest buying season of the year.

The LMI data shows inventory flowed downstream in November.

Inventory levels at upstream firms declined to 52.6% but rose to 63.4% at downstream companies. The spread was the opposite in October with distributors and wholesalers holding the bulk of the merchandise.

Overall, the inventories subindex declined 300 bps in November to 58.8%. While a considerable amount of merchandise was pulled forward for the holidays, retailers remain in an inventory deficit compared to pre-pandemic stock levels.

“The shortages of retail goods this holiday season have not been as severe as they were predicted to be,” the report continued. “This seems to have been largely achieved by firms spending heavily on warehousing and transportation to get goods downstream.”

High demand and a lack of available transportation capacity were evident in prices again during the month. The transportation prices subindex displayed a 93.2% reading, 250 bps higher than October. The index has been above 87% since February. By comparison, it hovered around 50% in the months leading into the pandemic.

“The expectations of continued transportation price increases for the next 12 months remain very strong,” the report stated. The forward expectation for transportation rates came back at 84.3%, up 130 bps sequentially.

Warehousing capacity (44%), utilization (68.2%) and prices (90.3%) round out the index’s components.

A lack of warehouse space is reflective of the amount of goods landing on U.S. shores as well as significant bottlenecks and transportation capacity shortages throughout the supply chain. Transportation delays are keeping goods stuck at facilities longer than normal. The result has caused rents to gap higher.

The warehousing prices index hit its highest reading ever during the month and has been higher than 80% since March.

Further evidence that the nation is in an inflationary environment can be seen when combining all of the LMI’s cost indexes. Aggregate logistics prices — the sum of inventory costs, warehousing prices and transportation prices — also hit an all-time high in the month at 271.1, up 880 bps from October. The historical average for calculation is 192.2. It has been over 250 for nine straight months.

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.