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Transportation metrics show early signs of firming in January

A deterioration in transportation metrics slowed in January, according to supply chain data published Tuesday.

A monthly survey of supply chain executives, the Logistics Managers’ Index (LMI), showed transportation prices contracted at a slower pace than that of the all-time fastest rate of decline the data set logged during December. The prices subindex registered a reading of 42 in January.

A reading level below 50 indicates contraction while one above signals expansion.

The January change rate for prices was the highest in three months and 5.1 percentage points higher than in December. However, the index still sits near two-year lows.

Transportation utilization was up 8.9 points to 57, the highest level since September when inventories were being moved from wholesalers to retailers in advance of the holiday buying season. Transportation capacity (70.2), however, continued to expand by a healthy clip, remaining near all-time highs.

“The transportation metrics remain down from where they were from late 2020 to early 2022, but we do see some encouraging signs,” the report said. “There is still excess transportation capacity in the market, but respondent future predictions and anecdotal evidence from carriers suggest that increased demand may begin soaking up some of this excess soon.”

Truckload data from FreightWaves shows the industry has potentially found the floor. 

Both tender rejections and spot rates remain depressed, following a brief rebound from the end of December into mid-January. While many carriers are forecasting a recovery in demand by summer, some have also cautioned that the recent bounce in freight metrics may have had more to do with the trucking sector playing catch-up following severe weather at the end of the year.

Chart: (SONAR: OTRI.USA) A proxy for truck capacity, the Outbound Tender Reject Index, shows the number of loads being rejected by carriers. To learn more about FreightWaves SONAR, click here.
Chart: (SONAR: NTIL.USA). The National Truckload Index (linehaul only – NTIL) is based on an average of booked spot dry van loads from 250,000 lanes and 10,000 daily spot market transactions. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel.

The overall LMI logged in at 57.6 in January, three points higher than in December. This was the second straight increase for the index after falling seven of eight months.

“Inventories are much lower now than they were in Q3 of last year, and it seems the supply chains are coming back to life with the goal of replenishment,” the report said.

Inventory levels (62.5) expanded again in the month, up 5.2 points sequentially. However, the reading was 8.6 points lower year over year and in line with the level recorded in January 2021.

“This means that seasonally speaking, inventories may be getting ‘back to normal’ following the runaway growth we saw in 2022 [as] firms were finally able to run down inventories over the holiday season.”

Inventory costs (74.2) continued to expand, but the index has settled into a less inflationary band, down 13.7 points from a year ago. However, inventory costs have grown at a reading of 70 or higher for 28 consecutive months. Inflated warehouse rents and higher interest rates have pushed the costs associated with holding merchandise higher.

“If 2023 is the return to normal that many in the industry are anticipating, we would expect to see inventories continue to climb slowly, peaking sometime in Q3.”

Warehousing capacity (46.4) contracted for the 30th straight month, “the longest run of contraction that we have observed for any of our metrics during the 6.5 years of the LMI.”

The capacity reading crossed into expansion territory at 51.5 in the back half of the month, up more than 10 points when compared to the first two weeks of January.

“It will be interesting to observe whether this is a sign of capacity finally loosening up in the warehousing sector or if this is merely a momentary few weeks of calm before firms begin to rebuild their inventories for 2023.”

Warehouse utilization (67.1) and prices (75) remained firmly in growth mode.

The forward-looking expectation for warehouse utilization was more than 14 points higher for upstream wholesalers during the month when compared to downstream retailers, possibly signaling “manufacturers are optimistic about the potential for future orders/sales, particularly as transportation prices come down.”

Upstream firms also had a higher expectation for future warehouse prices (77.1), 12 points higher than retailers.

In fact, upstream firms expected more significant rates of expansion in seven of the index’s eight components, “lending credence to the idea that the economy is generating some forward momentum.”

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.

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