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Signs of Potential Turning Point in Freight Cycle Emerge from Logistics Managers’ Index

In the ongoing freight recession, signs of a potential inflection point have surfaced, as revealed in the Logistics Managers’ Index (LMI) report released on Tuesday. The report suggests that while the freight recession persists, cracks in the downturn have started to appear, aligning with observations since late July.

Transportation Prices: Transportation prices experienced a decline in September (43.5), albeit at a rate slower than the record pace set in May. The year-over-year (y/y) decline was only 1 percentage point during the month. Notably, downstream companies closer to consumers (retailers) reported a neutral pricing reading of 50, contrasting with a 39.7 reading from upstream companies (wholesalers and manufacturers).

The LMI utilizes a diffusion index, with readings above 50 indicating expansion and those below 50 signaling contraction. The transportation pricing subindex was 46.8 in the last two weeks of September, improving from 38.5 in the first half of the month. Respondents foresee a transportation rate reading of 69.4 one year from now.

Transportation Capacity: Transportation capacity (64.3) increased by 3.8 percentage points in September from its 16-month low in August. Simultaneously, transportation utilization (53.5) expanded by a similar amount. This indicates a potential shift towards growth in the logistics industry.

Overall LMI: The overall LMI (52.4) expanded for a second consecutive month, 1.2 points higher than August. However, it remains below the historical average of 62.9, suggesting a cautious optimism. The report suggests that this sustained expansion could signify a turning point back towards growth in the logistics industry.

Potential Challenges: While the report deems it unlikely for the index to retreat in the seasonally stronger fourth quarter, it acknowledges external factors such as a government shutdown or widespread strikes among auto workers that could impact the data set.

Inventory Trends: Inventory levels (47.4) slightly declined in September for the fifth consecutive month, staying in contraction territory. Larger companies with over 1,000 employees saw modest expansion (51.6), whereas small firms recorded a contractionary level of 40.2. The total reading for inventories was 24.5 points lower y/y.

Inventory Costs: Inventory costs (64.6) expanded again but at a pace 4.5 points lower than in August, primarily attributed to reduced overall stock levels.

Warehousing Metrics: Warehousing metrics were pivotal in the LMI change in September. Despite a rise in industrial vacancy rates, warehousing prices (71.2) surged 7.9 points to the highest level since February. Warehouse capacity (57.3) grew at a slower pace, while utilization (60.9) increased.

Survey respondents anticipate future warehouse rents to remain elevated, with a one-year-ahead index reading of 71.5, up 5.1 points from August. Warehouse utilization was notably higher at downstream companies, indicating a potential surge in consumer demand during the upcoming holiday season.

The LMI, a collaborative effort among Arizona State University, Colorado State University, Florida Atlantic, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals, provides a comprehensive view of the current state of the logistics industry. The latest data suggests a cautiously optimistic outlook, with indicators pointing towards a possible turning point in the freight cycle.