October 2018 Logistics Manager’s Index Report™
According to a sample of North American logistics executives, economic activity across the logistics sector continued to expand through October 2018. We do however find evidence that both Warehouse Capacity and Transportation Capacity are contracting – meaning less space is available. The low rates of supply available have resulted in spikes in costs for Inventory, Warehousing, and Transportation, including an all-time index high rate of growth in Inventory Costs.
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).
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 150 supply chain professionals collected in October 2018.
As mentioned above, capacity is down across the board, with both available Transportation Capacity and Warehousing Capacity contracting. Transportation Capacity has been contracting since July of 2017, but this is the first time we have read contraction in Warehouse Capacity since January of this year. This suggests that firms are having difficulty finding readily available sources of transportation or storage supply when they need it.
The lack of available capacity is likely contributing to the high rates of growth in Inventory Costs (81.4), Warehousing Price (80.23), and Transportation Price (87.94). For the first time in index history, all three cost/price metrics register index scores above 80.0. The diffusion index used in the LMI® maxes out at 100.0, scores above 80.0 are considered to be very high rates of growth.
There may however be some relief. Future predictions indicate that respondents predict an increase in available Warehousing Capacity over the next 12 months, but make no such prediction for Transportation Capacity. This may indicate that relief is on the way for in regards to storing inventory, but not for moving it. It is worth noting that over the past year LMI® respondents have been very accurate in their future predictions.
The index scores for each of the eight components of the Logistics Managers’ Index, as well as the overall index score, are presented in the table below. All three metrics regarding Warehousing: Utilization, Capacity, and Pricing, and increasing at increasing rates. The same is true for Transportation Utilization. Inventory Levels, Inventory Costs, and Transportation Prices are growing, but at lower rates than in July/August. Once again, Transportation Capacity is the only metric measured in this index that is currently contracting. The overall LMI® index score is up.
The overall LMI index is 69.01 in the October 2018 reading. This is down slightly from the rate of growth in July 2018, when the overall index read in at 70.22. This indicates a significant rate of expansion in the logistics industry, but at a slightly slower rate than September. Six of the eight metrics are reporting a state of growth, but the contraction in both Warehousing and Transportation Capacity, particularly the 9.7 point drop in Warehousing Capacity, are likely dragging down the overall index in October. Despite the slight drop, the index reading of 69.01 is well above 65.4, which is the average LMI® over the first 25 months of the index.
Looking forward, respondents predict the overall LMI will continue to grow over the next year, predicting an overall index score of 72.0. This indicates an expectation of continued growth in the logistics industry well into 2019.
Every reading since the beginning of this project in September of 2016 has indicated growth in the logistics industry. The October 2018 reading continues that trend, with the overall index score reading at 69.01, 19 points above the growth/contraction threshold of 50.0. Respondents appear to be optimistic that this trend will continue, predicting an overall LMI® Index score of 72.0 12 months from now in October 2019. Preliminary analysis suggesting elements of the LMI® – Transportation Prices and Inventory Levels in particular –are leading indicators of future movement in the U.S. economy. However, more index readings are required to officially establish these relationships.
The Inventory Level index is 62.13, which indicates that inventory levels are continuing to rise. Because this is well above 50, inventory levels are still growing, but the rate of growth is slowing, and this is the fifth consecutive month of slightly lower values. This value is 9 points below the level a year ago at this time, of 71.2. The July/August numbers were equal to the previous year’s, and the two reports, before that were significantly higher than the previous year. It would appear that the fast growth we were seeing before has slowed to a lower growth rate, but still significant. The current reading of 62.13 is slightly below the all-time average value for this metric, which is 63.5. The trend over the last several readings has been a steady slight decrease. This trend indicates that inventory levels are still increasing, but that the rate of growth is slowing.
When asked to predict what will conditions will be like 12 months from now, the average value is 69, indicating inventory levels are expected to be higher than current levels. This value is higher than last month’s year-ahead prediction, which might indicate increased confidence in increasing levels next year.
Given the high levels of inventory growth, it is not surprising that inventory costs are near their all-time highest values. What is surprising is that the index value has actually reached a new all-time high. The Inventory Cost index value is 81.40, and any value above 50 indicates growth, and respondents say inventory costs have continued to climb, significantly. This record high is only slightly higher than the previous high of 81.34, recorded in March/April of 2018. Values have stayed within 5 points of this level since that time. These continued high levels indicate strong continued growth in inventory levels. The current value of 81.40 is more than 10 points higher than the 70.8 value last year at this time.
When asked about what they expect inventory costs to be like 12 months from now, respondent answers yields an index value of 81, a slight increase over last month’s future forecast of 78.4. Respondents expect inventory costs to continue to be high for the next 12 months.
The Warehousing Capacity Index registered 46.99 percent in October 2018. This represents over a nearly 10 percentage point decrease from the September 2018 reading of 56.64 and is sharply down from the Jan/Feb 2017 high of 59.5. This is the second lowest reading ever recorded in the LMI®. It would appear that warehousing capacity is contracting as the holiday season approaches.
Looking forward at the next 12 months, the predicted Warehousing Capacity index is 57.9. This indicates that firms are hopeful that more warehouse space will become available over the next year, but not at a significantly high rate.
The Warehousing Utilization Index registered 72.90 percent in October 2018. This is a rather small decrease of .18 percentage points from the September 2018 reading of 73.08. This is the fifth highest level of Warehousing Utilization overall, and is up 18.40 points from the all-time low of 54.5 in June 2017. This slight decrease in the rate of utilization, coupled with the rather sharp decline in the rate of capacity indicates that warehousing remains relatively tight.
Looking forward at the next 12 months, the predicted Warehousing Utilization index is 70.5, indicating that firms anticipate utilizing existing warehouse capacity consistently over the next year.
Finally, the Warehousing Prices Index registered 80.23 percent in October 2018. This is a slight increase of 0.10 percentage points from the September 2018 reading of 80.51. The reading of 80.23 is the third highest value for the Warehousing Prices Index to date. Taken together with the decreasing rate of capacity, as noted above, and the still high rate of increase of utilization, it appears that pricing continues to rise as availability decreases.
Looking forward at the next 12 months, the predicted Warehousing Prices index is 77.8, indicating little relief from increasing warehousing prices.
The Transportation Capacity Index registered 44.24 percent in October 2018. This is an increase of 3.21 percentage points from the September reading of 41.03. Transportation capacity continues to decrease, but at a decreasing rate. The latest reading is the fourth consecutive period showing slowing rate of contraction.
It should be noted the data also indicates a score of 48.24 percent for the next year. Hence, the expectation is a slight improvement from the current Transportation Capacity Index, but the level is still under the critical 50 percent, indicating that a slight contraction in transportation capacity is expected over the next 12 months.
The Transportation Utilization Index registered 76.26 percent in October 2018. This is a very small increase of .07 percentage points from the September reading of 76.19. This score indicates a continuing increasing trend in transportation utilization. The transportation utilization rate remains at historically high levels, latest reading being the second highest reading to date.
Our future Transportation Utilization Index indicates a 77.11 percent level for the next 12 months, indicating strong expectations for continuing the increase in transportation utilization rate.
The Transportation Prices Index registered 87.94 percent in October 2018. This is 1.86 percent lower than the September 2018 transportation prices reading. Transportation Prices Index has come off its historical highs, with the latest reading being the fourth consecutive decrease from the all-time high registered in March-April 2018. However, it should be noted that prices continue to increase at very high rates, just rates that are slightly lower than prior readings in 2018. It is possible that because Transportation Prices have been going up for so long, they have less “room” to grow as the market struggles to find equilibrium. Whether or not the rate of growth increases during the holiday season remains to be seen.
The future expectations for transportation prices are at 90.14 percent, indicating that the upward pressure on transportation prices is likely to persist over the next 12 months.
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About The Logistics Manager’s Index®
The Logistics Manager’s Index (LMI) is a joint project between researchers from Arizona State University, Colorado State University, University of Nevada, Reno, Rochester Institute of Technology and Rutgers University, supported by CSCMP.