December 2018 Logistics Manager’s Index Report® signals growth ahead

LMI® at 64.65%. Growth is INCREASING AT AN INCREASING RATE for: Inventory Levels and Transportation Capacity. Growth is INCREASING AT A DECREASING RATE for: Inventory Costs, Warehousing Utilization, Warehousing Price, and Transportation Utilization, Transportation Price.  Warehouse Capacity is DECREASING.

According to a sample of North American logistics executives, growth continued across the logistics sector in December 2018, but at a considerably decreased rate. We track a significant drop in the rates of growth for Warehousing Utilization (down 8.0 points), Transportation Price (down 5.5 points) and Transportation Utilization (down 6.4 points). Once again we observe Transportation Capacity moving in the opposite direction (up 5.2 points) of the other two Transportation metrics.

Evidence suggests that the logistics industry continues to expand, but at an increasingly slower rate than for much of 2018. In the 28 months of the LMI® Transportation Price has been that metric that is most closely tied to U.S. economic activity. It is somewhat surprising that the yearly low reading for Transportation Price (74.34) comes in what should be one of the busiest retail months of the year. Again, this still shows growth, but at a much slower pace than earlier in the year with readings in the 80’s and 90’s.

The report was issued today by researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP).

Results Overview

The LMI score is a combination eight unique other components that make up the logistics industry, including: inventory levels and costs, warehousing capacity, utilization, and prices, and transportation capacity, utilization, and prices. The LMI is calculated using a diffusion index, in which any reading above 50 percent indicates that logistics is expanding; a reading below 50 percent is indicative of a shrinking logistics industry. The latest results of the LMI summarize the responses of over 120 supply chain professionals collected in December 2018.

As mentioned above, we recorded much slower rates of growth in many metrics in December. Traditionally the fourth quarter, and the holiday season in particular, see an increased level of economic activity. However, Transportation Prices, Transportation Utilization and Warehouse Prices register their lowest readings of the entire year. Transportation Costs are at their lowest rate of growth since March/April 2017. This is likely tied to the continuing increase in Transportation Capacity (56.25) which is growing at its highest rate since March/April 2017, and since then had primarily been contracting. We also register the second lowest rates of growth for Warehouse Utilization and the overall LMI.  These metrics are all still growing. Whether or not the diminishing rates are reflective of the other recent indicators (the Dow, truck orders, PMI, etc.) that the economy may be slowing down remains to be seen. However, we have now registered a significant drop in growth rates for two consecutive readings.

Interestingly, the inventory metrics were relatively stable in December. Inventory Levels (63.06) are up a point, and Inventory Costs (72.73) are down one. The increase in Inventory Levels combined with the increase in both Warehouse and Transportation Capacity may be reflective of the massive amounts of capacity that have been added over the last year.

Future predictions indicate that respondents predict an increase in available Warehousing and Transportation Capacity over the next 12 months. However, they also predict significant continued growth in all three cost variables (Transportation, Warehousing, and Inventory).  However, they all read in slightly lower than the future predictions from November, potentially indicating that respondents are more optimistic that supply will be able to support  demand for logistics services. It is worth noting that over the past year LMI® respondents have been very accurate in their future predictions. Whether or not this period’s dip in growth rates will have an impact on this accuracy remains to be seen.