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Transportation capacity ‘historically low’; prices ‘show no sign of slowing’

Transportation capacity ‘historically low’; prices ‘show no sign of slowing’

Further tightening in the supply chain

“Growth is increasing at an increasing rate” across most components of the supply chain, according to a Tuesday report.

The Logistics Managers’ Index stepped 2.3 percentage points higher from March to 74.5% in April. This was the second-highest reading the dataset has logged in its nearly five-year existence.

The LMI is a diffusion index wherein a reading above 50% indicates expansion and a reading below 50% indicates contraction. The survey is designed to capture the rate of change in areas like transportation, inventory and warehousing.

“The re-heating of the economy has been interesting as pent-up demand has led to a ramp-up in both the consumption and production of consumer and industrial goods,” the report read. “The tightness that has been observed in the logistics industry over the last nine months continued unabated in April 2021.”

The transportation capacity subcomponent of the index increased 2.8 percentage points to 33.2%, still “historically low” and firmly in contraction territory. The report described the capacity environment as “one of the tightest transportation markets we have ever measured.”

This has been most evident in the truckload market, where carriers are still rejecting one in every four loads under contract.

Chart: (SONAR: OTRI.USA) To learn more about FreightWaves SONAR, click here.

A strong consumer, the need for inventory restocking and a severely diminished driver pool remain the catalysts for the tight capacity dynamic. Asked their expectations on the capacity situation one year from now, the respondents’ collective opinion deteriorated 5.6 percentage points from March to 44%.

Transportation utilization, up 5.9 points from March to 71.9%, remained close to historical highs with transportation prices climbing 2 points to 92.6%, the highest level in the past 2.5 years.

The one-year prediction on transportation prices from respondents increased 4.1 points from March to 86.2%. “Respondents have been faced with steep rates of price growth since last summer, and at this point they do not seem hopeful that there will be much relief over the next year,” the report found.

Inventory levels did improve in April, up 5.2 points at 66.7%. The value was nearly 6 points higher than the historical average and the outlook from respondents calls for continued growth.

However, commentary from the report cooled those expectations: “There may not be much relief on the horizon for inventories, despite the rate of manufacturing growth, overall volume is still down from 2019, suggesting that industrial production is still in the process of fully recovering.”

Inventory costs climbed 4.6 points to 84.6% and warehousing prices increased 2 points to 83.5%, both all-time highs.

Retailers appear happy to take on incremental merchandise regardless of the increased costs to store it. The rapid rate at which they are stocking up is directly tied to record holiday spending, which continued to outpace inventory additions through January.

The retailers’ inventories-to-sales ratio moved slightly higher in February to 1.23x from the all-time low set in January, but remained well below pre-pandemic levels of roughly 1.45x, according to the latest Federal Reserve data.

The sum of the LMI’s three cost components — warehousing prices, inventory costs and transportation prices — was at a record high in April, a dynamic that will likely hold as long as the consumer remains strong enough to absorb at least a good portion of the cost increases.

“The combination of increasing demand, and increasingly restricted supply will likely continue to be an issue going forward, as respondents are not optimistic about rapid increases in available capacity,” the report stated.

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.

Click for more FreightWaves articles by Todd Maiden.


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4 May 2021, 22:07