Transportation capacity remained level in September while pricing continued to see modest increases, a supply chain sentiment survey showed on Tuesday. This was the second time this year that the capacity index didn’t expand, a sign that the freight market may finally be turning. (The last time the capacity index contracted was in March 2022.)
The Logistics Managers’ Index, a monthly query of supply chain executives, showed the transportation capacity index stood at a neutral reading of 50 during September, 6.7 percentage points lower than the August update. The LMI is a diffusion index wherein a reading above 50 indicates expansion while one below 50 signals contraction.
The forward-looking expectation among respondents is for the capacity index to be well into contraction mode one year from now at 44.2. The latest forecast is an 8.2-point decline from the month-ago expectation. The report also cautioned that a prolonged strike at the East and Gulf ports could meaningfully curtail capacity.
“One of the things that made transportation so expensive in 2021 was the imbalance of freight capacity,” the report said. “The disproportionate volume of goods coming in through West Coast ports meant that trucks were continually rushing back to Southern California to pick up expensive loads, leading to a shortage of capacity in the other parts of the country.”
Transportation utilization (57.6) remained in expansion territory in September but slid 1.9 points from August. Transportation prices (58.4) were down 3.2 points sequentially but remained in growth mode for a fifth consecutive month, the longest positive streak since early 2022. The one-year expectation for the pricing index is 80, which would “signal a move back to a full-fledged freight boom.”
Of note, downstream companies like retailers indicated a higher pricing environment during the month, returning a reading of 68.3, more than 13 points higher than upstream suppliers (manufacturers and wholesalers). The report said much of the change is associated with retailers taking possession of inventories that had been sitting upstream the past several months, ahead of peak season.
Total inventory levels (59.8) increased 4.1 points in the month (a higher level than a year ago but below the overstocked levels seen in 2022) ahead of what is “expected to be the busiest peak season since 2021.” Downstream firms finally saw inventories move into expansion territory, posting a reading of 56.7, which was a full 10 points higher than in August.
“This represents some modicum of relief for Upstream supply chains, where goods had been building up like rainclouds waiting for the eventual downstream release as we move into Q4,” the report said, noting some firms took delivery of goods earlier this year to avoid potential disruptions at the East and Gulf Coast ports.
It also said downstream companies have been running just-in-time inventory practices this year as transportation capacity has been plentiful. They were “comfortable waiting longer to move goods, knowing that they would be able to find affordable [transportation] options to move them downstream.”
Given the higher inventory levels, inventory costs (71.3) were up 2.3 points in the month, the first time that index has been above 70 since February 2023. Increased activity in the downstream portion of the supply chain pushed warehousing and transportation prices higher for this segment, “signaling that retail supply chains are whirring back into motion for peak season.”
Warehousing capacity (55.9) fell 3.7 points in the month while utilization (60.9) was up 3.3 points. The changes pushed warehouse prices (66.9) up 3.2 points. Downstream warehouse pricing sentiment was 75, 10 points higher than it was upstream, “providing further confirmation that retailers are building up inventories at the end of Q3, in anticipation of a strong Q4.”
The overall LMI (58.6) increased 2.3 points to its highest level in two years. This was the 10th straight month of expansion, “providing strong evidence that the logistics industry is back on solid footing.” While the 8-year-old dataset has been below its all-time average of 61.8 for 24 straight months, the report said that “may not be the case for long” as inflation has slowed and the Federal Reserve is cutting interest rates.
The one-year forecast for the LMI was 65.4, 3 points higher than in August.
The LMI is a collaboration among Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals.
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