Logistics Managers' Index Sees Record Low, No Inventory Build Ahead Of Peak Season

The Logistics Managers' Index (LMI) declined in October to 54.4%, a 220-basis-point drop from the September reading. That signals growth in the logistics industry, albeit at a more subdued pace. The October reading was the slowest growth rate recorded in the history of the 3-year-old index, significantly lower that the 71.2% reading the same month last year.

LMI – SONAR: LMI.TOTL

The LMI is a diffusion index, wherein a reading above 50% indicates expansion and a reading below 50% indicates contraction. The index represents data collected from a monthly survey of North American logistics executives measuring eight components related to the freight industry: inventory levels, inventory costs, warehousing capacity, warehousing utilization, warehousing prices, transportation capacity, transportation utilization and transportation prices. 

From the press release: "Many of you have been hearing that the ‘economy is strong,' and that is partially true. The consumer economy continues to be strong. But, the upstream economies where supply chains live appear from several indicators to not be as strong."

In October, seven of the eight components recorded readings below their historical averages. Transportation capacity was the only component outperforming its average. The Transportation Capacity Index increased nearly 6 percentage points on a month-over-month basis to 65.4%.

LMI Transportation Capacity Index – SONAR: LMI.TPCP

The survey's finding regarding capacity is representative of the current truckload (TL) market, where spot rates have been plagued by excess truck capacity for more than a year now. Many fleets increased tractor counts in 2018 to take advantage of a lack of tractor supply, which was driving rates higher at the time. As volumes rolled over in the fall of 2018, but new tractor additions hung around, spot rates began to move significantly lower. While there are many potential capacity-curbing events on the horizon — carrier failures/downsizing, declining Class 8 truck orders, the electronic logging device mandate, drug and alcohol clearinghouse, etc. — truck rates remain under pressure.

The Transportation Prices Index declined more than 7 percentage points in October to 43.5% and well below 2019's prior low of 48.6% in May. While the 12-month forward-looking expectation for transportation prices declined more than 5 percentage points from September, the 62.7% future expectation is well ahead of recent readings.

LMI Transportation Prices Index – SONAR: LMI.TPPR

The expectation for transportation prices is further confirmed by the Transportation Utilization Index, which increased modestly to 60.4% in the month. Further, the index has rebounded from the record low of 51.5% in June. The index is up four straight months, and the 12-month outlook has increased almost 7 percentage points month-over-month to 64.2%.

LMI Transportation Utilization Index – SONAR: LMI.TPUT

Of note, the Inventory Levels Index remained flat compared with September, at 55.1%. It is customary to see a seasonal uptick in inventory as freight shipments peak ahead of the holidays. While 2018 didn't see this trend, the year saw exceptional strength, with freight volumes slowing materially in the fall. 2018 did see some inventory build at the end of the year and into 2019 as inventory was pulled forward in advance of new tariffs. The September 2019 reading is 16 points lower than the reading in the same month of 2017.

LMI Inventory Levels Index – SONAR: LIM.INVL

Warehouse capacity increased more than 3 points to 57.7% as new warehouse build-outs have been brought online and as inventory builds ahead of peak season may be occurring at a "slower-than-expected" pace. Warehouse utilization rose almost 2 percentage points to 65.8%, with warehouse prices declining 4 points to 65.6%.

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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