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FORT COLLINS, Co. – The Logistics Manager’s Index has fallen to an all-time low, moving into contraction territory for the first time in its six-and-a-half-year history. May’s reading came in at 47.3, a 3.6-point dip from April.
The key decline for the report, which aggregates responses from supply chain executives, was transportation utilization, which fell 9.5 points from April, indicating that shippers are using even less available space than they did a month ago.
Perhaps even more notable were transportation prices, which saw the biggest contraction in the report’s history.
“No LMI metric is more reactive to movements in the macro economy than Transportation Prices, and the slowdown we’ve seen over the last two years is certainly reflective of the ongoing freight recession that was always going to be difficult to avoid after the runaway growth of 2020-20221,” the report read.
Prices are expected to stabilize however, with the 12-month outlook for rates just 0.6 points lower than April.
Inventory levels dropped (-1.5) to 49.5, marking the first time inventories have been in contraction territory since February 2020. Downstream retailers (companies closer to the consumer) reported that inventories are continuing to grow however, with upstream manufacturers and wholesaler inventories bringing the overall number down to contraction.
“Without an influx of inventory for the holiday season, the freight market will continue to struggle,” the report read. “Whether or not a new wave of inventory is coming is unclear, with different groups holding different opinions.”
The cost to hold inventory is increasing, though at a slower rate than April. Warehousing prices are still growing at a rate of 62.8 but are down (7.0) from last month and at their lowest level since June 2020. These are likely to continue to come down as more long-term contracts signed during 2020 and 2021 continue to come off the books, the report predicts.
“Essentially, we are seeing the amount of inventory on-hand decrease in many places, but the cost of holding it in stock is still high,” the report continued. “This may be partially because larger bulk goods are not moving quickly, and static inventories can be expensive.”
Warehouse capacity fell 18 points from last year, falling to the second-lowest rate of growth recorded. That may indicate “a decrease in demand for warehousing, despite capacity continuing to come online.”
