Logistics Managers Index continues to show growth in August

The logistics sector remained on the right side of growth in August, according to the recently-released Logistics Manager’s Index (LMI).

The monthly LMI is a joint project among researchers from Arizona State University, Colorado State University, University of Nevada, Reno, Florida Atlantic University, and Rutgers University, and also receives support by Council of Supply Management Professionals (CSCMP). CSCMP. The LMI is written by Zac Rogers Ph.D., Steven Carnovale Ph.D., Shen Yeniyurt Ph.D., Ron Lembke Ph.D., and Dale Rogers Ph.D.

The report’s authors explained that the LMI score, or reading, is based on eight “unique components” within the logistics sector, including: inventory levels and costs, warehousing capacity, utilization and prices and transportation capacity, utilization, and prices.

The August LMI reading, at 59.3, eked out a 0.1% gain over July’s 59.2. The report’s authors explained that this slight increase was due to what they called “counteracting forces at the sub-component level.” And it added that upward pressure was driven by inventory and warehousing metrics, with Inventory Level expansion up 2.7%, to 58.2, in August, with Inventory Costs up 7.3%, to 79.2, and Warehousing Prices up 3.9%, to 72.2, coupled with Warehouse Capacity expansion down 0.6%, to 50.5, just above the break-even 50.0 reading for growth, indicating “very marginal rates of expansion.”

On the other end, the LMI cited declines in Transportation Prices, down 6.9%, to 56.1, and Transportation Utilization, down 4.8%, to 54.7, while Transportation Capacity rising 4.7%, to 57.3. The report observed that Transportation Capacity expanding at a faster rate than Transportation Prices is significant, in that it represents a mild negative freight inversion, which it said does not come as a surprise, due to the ongoing uncertainty within global and domestic supply chains.

“It is worth noting that all of these shifts are primarily driven by both Upstream or Smaller respondents,” the report stated. “Larger firms and Downstream retailers are actually reporting contracting inventories, more capacity, and lower price expansion as they attempt to maintain JIT inventory management strategies to avoid higher costs. It is still true that still smaller upstream firms are being forced to hold higher inventory levels than downstream retailers. There is still incredible confusion about where the tariff percentages are going to end up given the recent Appeals Court decision that will likely go to the Supreme Court in October, but it is clear that tariffs are likely to end up higher than they ever have been previously.”

Addressing the negative freight inversion, the report noted that in the past, negative freight inversions have been associated with a move towards slowdowns in the transportation market. And it added that traditionally, a move like this would need to go on for at least three months before the report’s authors would begin to consider it an actual freight recession.

“The fact that we have moved towards a negative inversion in August, at the start of what should normally be peak season, renders the chances of a boom market happening any time soon as fairly unlikely,” it said. “Again, this does not mean that we will slide into a freight recession, and respondent future predictions actually point to that not happening. This is a marked shift however, and it will be critical to continue monitoring movements in these metrics as transportation often acts as a leading indicator for the overall economy.”