Transportation Capacity Rises Again In July, Pricing Declines, Report Says

By Todd Maiden of FreightWaves

Supply chain data released Tuesday showed further cooling in transportation markets. The July Logistics Managers’ Index (LMI) fell 4.3 percentage points to 60.7, the lowest reading in the data set since May 2020.

A reading above 50 indicates expansion while a reading below 50 indicates contraction.

“While this does still represent a healthy rate of expansion in the logistics industry, it is a far cry from March when the index hit an all-time high reading of 76.2,” the report read.  

The transportation prices subindex dropped 11.8 points in the month to 49.5. This was the first time in two years the pricing data was in contraction territory. However, the report noted that the exit rate for the month was 8 percentage points higher than in the beginning of the month. Transportation prices logged a 54.7 reading in the last week of July.

“We will continue to watch this space to determine whether this late July surge was an aberration, or a sign of breaking from the usual July doldrums and peak season coming over the horizon,” the report continued.

A 7.4-point jump in available transportation capacity (69.1) drove pricing lower in the month. This was the fastest growth rate for capacity since April 2019. However, the increase in capacity was “much more muted in the last week of July.”

Transportation utilization was up less than a point from June at 59.3, but the index marked 27 consecutive months of growth.

Transportation markets were notably tighter for downstream companies, or those closer to the end consumer, than upstream producers.

The 12-month forward-looking survey showed respondents believe transportation prices will remain high. The survey returned a reading of 58.7, which was 0.9 lower than June’s reading. The elevated rate expectation supports recent commentary from the C-suites of the nation’s biggest trucking companies. During the second quarter, many trucking executives said they expect rates to remain high as they continue to pass through cost inflation to shippers.

Inventory and warehousing metrics drove the overall increase in the LMI

Inventory levels (68.8) remained in growth mode, but the pace was 3 percentage points lower than in June. The index has also moved well off the February high of 80.2.

“There are signs of a slowdown in what had been out of control inventory growth as the current value is a mere 2.4 points higher than the same time last year,” the report said. “This means that seasonally speaking, inventories are increasing only slightly more quickly than one year ago.”

Inventory costs (79), down 4.8 points sequentially, have also pulled back from highs set earlier in the year. The total cost to hold merchandise will likely stay high as available warehouse space is in short supply and interest rates continue to increase.

Warehousing capacity continued to contract but at a slower pace. The subindex stood at 47 in July, a 6-point increase from June.

“This metric has been in a state of contraction since August of 2020, as high inventory levels and a long lead time on building new space has made it difficult for supply to keep up with demand,” the report stated. “It is likely that warehouse space will remain stretched through the rest of the year as we begin to move into the traditional peak season.”

Logistics real estate investment trust Prologis (NYSE: PLD) noted that the market moderated from all-time peak tightness during the second quarter. However, the firm still sees warehouse rents in the U.S. climbing 25% this year.

​Warehousing utilization (68.8) was down slightly during the month, with prices (76.2) slowing 2.2 points. However, both indexes remained firmly in expansion territory.  

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.