What’s Going on With Warehouse Space and Prices? Here’s What the Data Says

Date: Friday, May 5, 2023
Source: Sourcing Journal

An indicator covering inventory, warehousing and transportation seems to confirm the growing notion that logistics has entered a “freight recession.”

For the second consecutive month, the Logistics Managers’ Index (LMI) fell to a new low in its nearly seven-year history. April’s 50.9 reading is a 0.2-point decline from March’s reading of 51.1. April marked the third month in a row that growth in logistics slowed.

LMI is calculated using a diffusion index, meaning any reading above 50.0 indicates that logistics is expanding while the opposite signals a slowdown.

“Like 2019, it seems that we simultaneously have a recession in the freight industry, but not in the overall economy. Consumer spending on things like services remains high, but bulky goods are not being shipped B2B and trucking capacity is sitting idle,” according to the April report. “In 2018-2019, the upstream slowdown was caused largely by the trade war between the U.S. and China, in 2022-2023 it is due to the interaction of inflation and the excess inventories that were built up in 2021. It can be confusing to observe continued positive news for things like spending and unemployment, while at the same time seeing small truck fleets shutting down.”

While the industry is not officially in contraction, the LMI did move into contraction territory in the second half of April, according to the data. From April 1-17, LMI came in at 52.9, but dipped to 48.9 in the period of April 18-30.

This month’s reading was brought down by the continued slowing of inventory and warehousing metrics. Warehousing utilization, in particular, dropped by 9.9 points to 55.1, driven by a dip in inventory levels of 4.7 points to 50.9.

On a positive note, this combination suggests that supply chain businesses continue to get closer to balancing their inventory and working through the glut choking them for the past year.

Warehouse utilization has been volatile as of late, as April was the fourth month-over-month shift of 8.0 points or higher since August of last year. Despite this volatility, warehousing prices are down 1.1 points to 69.8, the first reading below 70.0 since August 2020.

On the other hand, warehousing capacity is on its third consecutive month of expansion, with the index registering at 54.7 in April 2023, down 3.5 points from March’s reading of 58.2. While the rate of growth has slowed, this marks three consecutive months of expansion coming on the heels of 2.5 years of contraction.

The LMI score combines eight components including: inventory levels and costs; warehousing capacity, utilization and prices; and transportation capacity, utilization and prices.

Data for the LMI is collected in a monthly survey of Council of Supply Chain Management Professionals (CSCMP) members working at the director-level or above.

Of note, inventory levels fell in April, coming in at 63.3 in the first half of the month before contracting at a rate of 42.6 in the back half. If trend continues into May, this would mark the first overall monthly contraction in inventory levels since February 2020, when inbound cargo shipments were slowed by a combination of the Chinese New Year and the original Covid-19 outbreak in China.

This drop in inventory levels led to a mild 0.9-point slowdown in the expansion rate of inventory costs, which read in at 65.1. Inventories are moving quickly for consumables, but more slowly for more expensive goods as consumers rein in spending, the data suggested.

This figure is down by 22.6 points from a year ago when inventory costs read in at 87.7. Perhaps reflecting the higher costs of warehousing, upstream respondents reported higher inventory cost numbers by 6.4 points (67.2 vs 60.8). When splitting the April responses between the first and second halves of the month, early responses were 7.0 points higher (68.9) than later responses (61.9), a less dramatic change than the inventory level gap.

According to the index, seasonality would suggest that the total index score should pick up in May, but if firms continue to shed inventory at this pace and upstream firms take their time replenishing large bulk goods, “then it is possible we will see the first-ever instance of contraction in the overall index.”

For the next year, the survey respondents expect the LMI reading to essentially stall over the next 12 months, predicting an expansion rate of 51.1, down 1.6 from March’s future prediction of 52.7. This would be well below the all-time average for the overall index at 63.9.

Interestingly, the three transportation metrics showed signs of getting a bit busier in April. Transportation utilization moved back up 5 points into expansion territory at 55.0 after reading in at “no movement” last month. Transportation prices are still contracting for the tenth-straight month, but at a lessened pace as the metric increased 5.7 points to 36.8, up from last month’s all-time low of 31.1.

Fleets continue to idle as transportation capacity fell 0.8 points to 70.6 and is now the lone metric coming in over 70.0, which the index classifies as a significant rate of expansion.

The LMI is a joint project between researchers from Arizona State University, Colorado State University, University of Nevada, Reno, Florida Atlantic University and Rutgers University, supported by the CSCMP.

The researchers say the “long-term survey” project aims to identify trends and developments in the logistics industry.


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