Transportation Prices Rise, Signaling End to 19-Month Contraction: LMI Update

  • Transportation Prices Rise, Signaling End to 19-Month Contraction: LMI Update

    Transportation Prices Rise, Signaling End to 19-Month Contraction: LMI Update

    For the first time in 19 months, transportation prices in the United States have shifted to expansion, driven by retailers’ increased inventory restocking. This development was highlighted in a recent Logistics Managers’ Index (LMI) report released on Tuesday.

    The LMI, a collaborative effort among several universities and the Council of Supply Chain Management Professionals, measures various aspects of the logistics industry. In January, the index rose by 5 percentage points to 55.6, indicating growth across all eight of its components. An LMI reading above 50 suggests expansion, while a reading below 50 indicates contraction.

    This upward trend in the LMI has been consistent for five of the past six months, signifying a potential rebound in the logistics sector. The report attributes this growth to retailers replenishing inventories post-holiday season, reflecting a renewed confidence in the economy among Americans.

    A notable highlight from the report was the increase in transportation prices, which, after 18 months of contraction, jumped 12.7 points to 55.8, indicating a significant shift into expansion territory. This change was seen alongside a still-growing transportation capacity, which, however, experienced a decrease in its growth rate compared to December.

    Despite these positive signs, the report cautions that a longer period of growth is needed before declaring an end to the freight recession that began in 2022. January’s data, however, does suggest that the logistics industry might be entering a period of growth following the prolonged downturn.

    Another interesting observation from the report was the inversion of transportation prices and capacity, a phenomenon which historically has signaled a market shift. The growth in transportation prices even outpaced capacity growth in January, an unusual occurrence in the 7.5 years of the LMI’s existence.

    This growth in prices happened despite a more than 15% year-over-year drop in diesel prices. Additionally, potential interest rate cuts, as forecasted by some analysts, could further stimulate the transportation industry by increasing activity among upstream firms like manufacturers and wholesalers, leading to more substantial shipments.

    Respondents to the LMI survey anticipate slight growth in transportation capacity and more significant growth in both utilization and prices over the next year. Moreover, inventory levels showed expansion for the first time in three months, indicating a shift from just-in-case to just-in-time inventory strategies by many companies.

    The report also revealed a disparity between upstream and downstream companies, with retailers restocking briskly while upstream firms reported declines in stock levels, partly due to an excess of semiconductors. However, upstream providers don’t expect this trend to last, predicting higher inventory levels in the future.

    In the warehousing sector, while all metrics showed a decline, they remained close to December’s figures. Prologis, a major logistics real estate operator, anticipates a slight decrease in occupancy in the first half of 2024, followed by a rebound. The company projects a 4% to 6% growth in annual rents over the next three years.

    Overall, respondents forecast the LMI to be at 62.8 one year from now, an indication of optimism for the logistics industry’s future. The LMI’s current upward trajectory and the anticipated positive outlook suggest a recovering and evolving logistics sector, pivotal to the broader economy.

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