FOR RELEASE: Tuesday, August 2nd, 2022
Contact:
Zac Rogers, Ph.D.
Logistics Manager’s Index Analyst
Assistant Professor, Supply Chain Management
Department of Management
Colorado State University
Fort Collins, Colorado
(970) 491-0890
E-mail: Zac.Rogers@colostate.edu
http://www.logisticsindex.org
Twitter: @LogisticsIndex
Contact:
Zac Rogers, Ph.D.
Logistics Manager’s Index Analyst
Assistant Professor, Supply Chain Management
Department of Management
Colorado State University
Fort Collins, Colorado
(970) 491-0890
E-mail: Zac.Rogers@colostate.edu
http://www.logisticsindex.org
Twitter: @LogisticsIndex
July 2022 Logistics Manager’s Index Report®
LMI® at 60.7
Growth is INCREASING AT AN INCREASING RATE for: Warehousing Utilization, Transportation Capacity, And Transportation Utilization
Growth is INCREASING AT A DECREASING RATE for: Inventory Levels, Inventory Costs, Warehousing Prices, Transportation Utilization. And Transportation Prices
Warehousing Capacity is CONTRACTING.
LMI® at 60.7
Growth is INCREASING AT AN INCREASING RATE for: Warehousing Utilization, Transportation Capacity, And Transportation Utilization
Growth is INCREASING AT A DECREASING RATE for: Inventory Levels, Inventory Costs, Warehousing Prices, Transportation Utilization. And Transportation Prices
Warehousing Capacity is CONTRACTING.
(Fort Collins, Colorado) — The Logistics Managers’ Index reads in at 60.7 in July, down (-4.3) from June’s reading of 65.0. This is the lowest reading since May of 2020 and the second consecutive reading below the all-time index average of 65.3. While this does still represent a healthy rate of expansion in the logistics industry, it is a far cry from March when the index hit an all-time high reading of 76.2. As is often the case, transportation metrics are the driving force behind this shift. Transportation Prices read in at 49.5 in July. While this is very close to no movement month-to-month, with a reading under 50.0 we have crossed the Rubicon into a state of contraction for the first time since May of 2020. Fueling this deflationary pressure are levels of growth in available Transportation Capacity (reading in at 69.1) that we have not seen since April of 2019. Interestingly, the downshifts we observed in transportation metrics were much more muted in the last week of July (as we will discuss below), leaving open a possibility for a bit of recovery as we move towards peak season. Warehousing and Inventory metrics continue to buoy the logistics sector. Inventory Levels remain high (and are responsible for dragging down U.S. GDP in the second quarter), and warehouses continue to struggle to hold and manage the volume.
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) issued this report today.
Results Overview
The LMI score is a combination of eight unique 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 50.0 indicates that logistics is expanding; a reading below 50.0 is indicative of a shrinking logistics industry. The latest results of the LMI summarize the responses of supply chain professionals collected in July 2022. Overall, the LMI is down (-4.3) from June’s reading of 65.0. The slowdown in the rate of expansion is the product of the continued slowdown in the transportation market. However, the overall logistics industry continues to expand, driven primarily by high levels of inventory growth and the associated costs.
The most significant development in this month’s LMI is the movement of Transportation Prices from expansion to contraction, dropping (-11.8) to 49.5. While this is close to no movement at all, it is technically a state of contraction, the first since May of 2020. However as we will discuss below, Downstream respondents, as well as all respondents who replied later in July, reported mild levels of growth. Regardless, this reading of contraction is a marked change from the trends of the last two years. One factor behind price contraction is that Transportation Capacity continues to increase, up (+7.4) to 69.1. This is a rate of growth not seen even during the height of the pandemic, and is the highest rate of expansion since April of 2019 which was the start of the previous freight recession. Dave Jackson, the CEO of Knight-Swift recently noted that this downturn is different from past slumps because fuel costs are high. This will push smaller carriers out of the market more quickly. At the same time, the lack of affordable used equipment will potentially stop new carriers from forming. The price of diesel in the U.S. was $5.27 in the last week of July, down 16 cents from the previous week, which was the biggest drop since February of 2009. Overall, diesel is down 54 cents per gallon from the all-time high reached in late June[1]. Even with the drop in prices the spread between retail and wholesale diesel prices reached $1.71 in the last week of July, placing a continually larger burden on smaller carriers who cannot buy the volume needed to achieve the lower price point[2]. Despite this, the number of trucks on the road will continue to rise as Paccar delivered 46,900 units in the second quarter. Their CEO Preston Feight assured analysts that they will remain busy despite the slowdown, with the rest of their production capability booked out through 2022. There is a potential for truck manufacturers to remain busy even with a slight slowdown, as the age of truck fleets is 10-15% older than normal. So, even if firms are not choosing to expand fleets aggressively, they may still be looking to phase out older trucks and cycle new rigs in[3].
Transportation was actually up (+0.9) slightly to 59.3, marking 27 consecutive months of growth for this metric. During the second quarter, truck shipments were actually up 2.3% from the first quarter and many larger fleets are predicting favorable conditions through the second half of 2022[4]. However, even some larger fleets have some exposure to them. In late July FedEx announced it would be discontinuing Sunday deliveries in some markets in an effort to reduce the costs currently burdening their army of independent contractors[5]. At the same time, UPS reported a decrease in volume in the second quarter, falling 222,000 packages short of their initial forecasts. Despite the decrease in volume, they reported higher revenues than expected due to increased shipping rates[6]. UPS volumes are largely parcel driven. It is interesting to compare this to FedEx’s recent earnings, in which their LTL business grew at a much faster rate than the more consumer-driven FedEx ground segment[7]. Meanwhile C.H. Robinson, a pure-play 3PL focused mainly on B2B freight, reported $6.8 billion in revenue, up 22.9% year-over-year[8]. Taken together, these reports point to a continued slowdown (although not necessarily contraction) in the downstream consumer economy. This may be partially reflected in the increase in orders for durable goods like capital and factor equipment, which was up 1.9% in June[9].
The biggest economic story in the U.S. over the last week has been the second consecutive quarterly drop in GDP, with seasonally-adjusted GDP down by 0.9%. Interestingly, real GDP was actually up by 2.7%[10], but when adjusting for the unseasonably high levels of inventories, we see a decline. While second-quarter consumer spending was actually up 1% on an annualized basis, inventories were up further than that, which dragged overall numbers down[11]. As firms rebalance inventories through the second half of the year, this should change. There is actually evidence of this change in the slowing rates of growth for both Inventory Costs and Inventory Levels observed in July and presented in the charts below. The rate of Inventory Level growth was down (-3.0) in July to 68.8, dipping back below 70.0 for only the second time in 2022. After the spikes seen in the beginning of the year, firms are clearly working to wind inventories down, with Inventory Levels now only 2.4 points higher than the rates of expansion we saw at this time last year
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) issued this report today.
Results Overview
The LMI score is a combination of eight unique 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 50.0 indicates that logistics is expanding; a reading below 50.0 is indicative of a shrinking logistics industry. The latest results of the LMI summarize the responses of supply chain professionals collected in July 2022. Overall, the LMI is down (-4.3) from June’s reading of 65.0. The slowdown in the rate of expansion is the product of the continued slowdown in the transportation market. However, the overall logistics industry continues to expand, driven primarily by high levels of inventory growth and the associated costs.
The most significant development in this month’s LMI is the movement of Transportation Prices from expansion to contraction, dropping (-11.8) to 49.5. While this is close to no movement at all, it is technically a state of contraction, the first since May of 2020. However as we will discuss below, Downstream respondents, as well as all respondents who replied later in July, reported mild levels of growth. Regardless, this reading of contraction is a marked change from the trends of the last two years. One factor behind price contraction is that Transportation Capacity continues to increase, up (+7.4) to 69.1. This is a rate of growth not seen even during the height of the pandemic, and is the highest rate of expansion since April of 2019 which was the start of the previous freight recession. Dave Jackson, the CEO of Knight-Swift recently noted that this downturn is different from past slumps because fuel costs are high. This will push smaller carriers out of the market more quickly. At the same time, the lack of affordable used equipment will potentially stop new carriers from forming. The price of diesel in the U.S. was $5.27 in the last week of July, down 16 cents from the previous week, which was the biggest drop since February of 2009. Overall, diesel is down 54 cents per gallon from the all-time high reached in late June[1]. Even with the drop in prices the spread between retail and wholesale diesel prices reached $1.71 in the last week of July, placing a continually larger burden on smaller carriers who cannot buy the volume needed to achieve the lower price point[2]. Despite this, the number of trucks on the road will continue to rise as Paccar delivered 46,900 units in the second quarter. Their CEO Preston Feight assured analysts that they will remain busy despite the slowdown, with the rest of their production capability booked out through 2022. There is a potential for truck manufacturers to remain busy even with a slight slowdown, as the age of truck fleets is 10-15% older than normal. So, even if firms are not choosing to expand fleets aggressively, they may still be looking to phase out older trucks and cycle new rigs in[3].
Transportation was actually up (+0.9) slightly to 59.3, marking 27 consecutive months of growth for this metric. During the second quarter, truck shipments were actually up 2.3% from the first quarter and many larger fleets are predicting favorable conditions through the second half of 2022[4]. However, even some larger fleets have some exposure to them. In late July FedEx announced it would be discontinuing Sunday deliveries in some markets in an effort to reduce the costs currently burdening their army of independent contractors[5]. At the same time, UPS reported a decrease in volume in the second quarter, falling 222,000 packages short of their initial forecasts. Despite the decrease in volume, they reported higher revenues than expected due to increased shipping rates[6]. UPS volumes are largely parcel driven. It is interesting to compare this to FedEx’s recent earnings, in which their LTL business grew at a much faster rate than the more consumer-driven FedEx ground segment[7]. Meanwhile C.H. Robinson, a pure-play 3PL focused mainly on B2B freight, reported $6.8 billion in revenue, up 22.9% year-over-year[8]. Taken together, these reports point to a continued slowdown (although not necessarily contraction) in the downstream consumer economy. This may be partially reflected in the increase in orders for durable goods like capital and factor equipment, which was up 1.9% in June[9].
The biggest economic story in the U.S. over the last week has been the second consecutive quarterly drop in GDP, with seasonally-adjusted GDP down by 0.9%. Interestingly, real GDP was actually up by 2.7%[10], but when adjusting for the unseasonably high levels of inventories, we see a decline. While second-quarter consumer spending was actually up 1% on an annualized basis, inventories were up further than that, which dragged overall numbers down[11]. As firms rebalance inventories through the second half of the year, this should change. There is actually evidence of this change in the slowing rates of growth for both Inventory Costs and Inventory Levels observed in July and presented in the charts below. The rate of Inventory Level growth was down (-3.0) in July to 68.8, dipping back below 70.0 for only the second time in 2022. After the spikes seen in the beginning of the year, firms are clearly working to wind inventories down, with Inventory Levels now only 2.4 points higher than the rates of expansion we saw at this time last year
The recent recalibration in inventories is even more apparent when observing shifts in Inventory Cost expansion. Inventory Cost expansion is down (-4.3) to 79.0, their lowest level and first time below 80.0 since February of 2021. So, while the cost of inventory is growing at a faster rate in 2022 than what we might have expected from 2016-2020, but it is now lower than what we were seeing in 2021. 2022's Inventory Costs dipped below 2021's around the end of Q2. If these trends continue, and we see the seasonal uptick in sales for back-to-school and the holiday season, inventories may start to be less of a drag on the overall economy
Despite the two quarters of consecutive contraction, the National Bureau of Economic Research is unlikely to declare an official recession due to strong job growth and consumer and business spending levels[12]. Many analysts still believe the fundamentals of the economy are strong, and that growth might pick up again through the second half of the year[13]. This is backed up by the increase in international commerce over the last month. The number of ships idling outside the ports of LA and Long Beach are down nearly 75% from early this year. However, it is not because less cargo is coming into the country, what we are actually seeing is that imports are being dispersed. In the last week of July there were 153 vessels idling near U.S. ports, with the majority of them in the previously lesser-used Gulf and East Coast ports[14], and some shippers have even considered increasing seasonal utilization of Great Lakes ports[15]. This likely reflects the lessons learned in the last two years regarding the danger of disruption when only relying on a single gateway into the U.S., it might also have been a preemptive shift to avoid potential issues surrounding labor disputes on the West Coast. The issues with congestion over the last year led the World Bank’s Port Performance Index to rank the ports of Long Beach and Los Angeles as the two least efficient ports in the world in 2021[16]. While congestion is building quickly at East Coast ports, and we will likely see delays in places like New York/New Jersey, there could be some additional benefit to spreading the congestion out. In 2020 and 2021 many truck fleets were out of position, with a disproportionate number of tractors and trailers moving back and forth between Southern California and destination cities, leading to a lack of trucks in places like the Midwest or Mountain West, artificially depressing available capacity in certain parts of the country. By spreading imports out through multiple ports of entry, fleets may be somewhat protected from the positioning issues they dealt with over the last two years. There has also been an uptick in land imports, $82.1 billion of freight moved across U.S. borders by truck in May, up 20.7% from May of 2021 and up 3.1% from April[17]. Despite inflation, the U.S. dollar is currently quite strong, increasing significantly through June and July relative to other currencies[18]. This makes imports cheaper but increases the cost of exports to other countries. The dollar’s strength has been burgeoned by interest rate increases, it will be interesting to track the impacts of interest rates on imports and exports as we move towards peak season.
The ongoing flow of inventory continues to impact the warehousing sector. Warehousing Capacity (+6.0) contracted for the 23rd consecutive month, reading in at 47.0. The depth of the lack of warehousing space is perhaps best exemplified by recent moves by Amazon. Despite their posting a second consecutive quarter of net losses and their widely reported plan to slow of fulfillment center expansion, Amazon is on the verge of opening up several large multi-million square foot facilities which will be among their largest ever (including a 3.9 million square foot facility in Northern Colorado less than 5 miles from where this sentence is being typed). They are expected to open approximately 250 new facilities in 2022[19]. Only in a world where the level of available warehousing space is so far below what the market demands- would opening 250 new facilities be considered a slowdown. The trends extend beyond Amazon as well. While consumers have shifted back towards brick-and-mortar retail, Prologis expects warehouse market rents to increase by 23% in 2022. Ecommerce as a percentage of retail is down from the peaks of 2020, but it is still up relative to pre-pandemic levels and analysts anticipate it to grow at a rate of 7% per year in the U.S. between 2022 and 2025[20]. The result of all of this is that Warehousing Utilization (-0.3) continues to grow at the strong rate of 68.8, while Warehousing Prices (-2.1) are expanding at a rate of 76.2. The movements in Warehousing Prices epitomize what we are seeing in the overall economy. The reading of 76.2 is the lowest since September 2020, suggesting a slowdown in the rate of growth. However, 76.2 still represents significant growth, and is still above the all-time average of 75.4 for this metric.
Interestingly, July’s readings varied significantly based on when responses came in. Responses that came in the last week of July (from the 23rd-31st indicated by the green bars), were higher across the board than those that came in from July 1st-20th (indicated by the gold bars). The number of responses in the two groups are close enough for meaningful statistical comparisons.
The ongoing flow of inventory continues to impact the warehousing sector. Warehousing Capacity (+6.0) contracted for the 23rd consecutive month, reading in at 47.0. The depth of the lack of warehousing space is perhaps best exemplified by recent moves by Amazon. Despite their posting a second consecutive quarter of net losses and their widely reported plan to slow of fulfillment center expansion, Amazon is on the verge of opening up several large multi-million square foot facilities which will be among their largest ever (including a 3.9 million square foot facility in Northern Colorado less than 5 miles from where this sentence is being typed). They are expected to open approximately 250 new facilities in 2022[19]. Only in a world where the level of available warehousing space is so far below what the market demands- would opening 250 new facilities be considered a slowdown. The trends extend beyond Amazon as well. While consumers have shifted back towards brick-and-mortar retail, Prologis expects warehouse market rents to increase by 23% in 2022. Ecommerce as a percentage of retail is down from the peaks of 2020, but it is still up relative to pre-pandemic levels and analysts anticipate it to grow at a rate of 7% per year in the U.S. between 2022 and 2025[20]. The result of all of this is that Warehousing Utilization (-0.3) continues to grow at the strong rate of 68.8, while Warehousing Prices (-2.1) are expanding at a rate of 76.2. The movements in Warehousing Prices epitomize what we are seeing in the overall economy. The reading of 76.2 is the lowest since September 2020, suggesting a slowdown in the rate of growth. However, 76.2 still represents significant growth, and is still above the all-time average of 75.4 for this metric.
Interestingly, July’s readings varied significantly based on when responses came in. Responses that came in the last week of July (from the 23rd-31st indicated by the green bars), were higher across the board than those that came in from July 1st-20th (indicated by the gold bars). The number of responses in the two groups are close enough for meaningful statistical comparisons.
Both Transportation Utilization and Warehousing Utilization were up by double digits, indicating statistically significant movements, and leading the overall LMI reading to be up significantly as well. Transportation Prices were the other big mover, up 8.0 points at the end of July. While this movement was not enough to provide statistical significance, it is a considerable move away from contraction and back into expansion. The increasing number of imports that begin arriving in late Summer and continue through the early Fall, along with the drop in fuel prices, could be playing a role in this shift. Whether or not this move portends a return to expansion in the coming months, or is a blip on the way to further contraction and a full-on freight recession, remains to be seen.
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. Seven of the eight metrics show signs of growth. Warehousing Capacity continues contracting for the 23rd consecutive month, although it is contracting at a slower pace than what we observed in June. Inventory Levels and Costs continue to grow at well above their average rates, keeping warehousing busy (and dragging down U.S. Q2 GDP). Transportation on the other hand continues to soften, with prices now officially contracting.
This month, both upstream (blue bars) and downstream (orange bars) firms reported considerable rates of continued growth in utilization of logistics services. We do not track and significant differences between the two groups in July as the lack of warehousing space and robust inventories seem to be impacting firms at all levels of the supply chain. While there was no statistically significant difference, it is interesting to observe that Transportation Prices continued to increase for Downstream firms, meaning that the contraction was largely driven by softening prices Upstream.
Respondents were asked to predict movement in the overall LMI and individual metrics 12 months from now. Their predictions for future ratings are presented below. July’s future predictions are similar to what we saw in June. Respondents continue to predict a slower rate of growth for Inventory Levels, albeit with an elevated expansion of Inventory Costs, as firms continue to right-size their inventories. Respondents continue to be more bullish on the expansion of Transportation Capacity (61.8) than Warehousing Capacity (51.5) by a more than 10-point margin. This is the second consecutive month that the prediction for Transportation Prices has been in the high 50’s. Reading the tea leaves, it seems that respondents are expecting the cost of transportation to come slowly back up once the market stabilizes – something that will likely involve further fleet consolidation, diesel prices reaching a greater level of stability, and a subsequent resetting of contract rates.
The exact nature of the future predictions varies by supply chain position. In July we observe statistically significant differences in both Warehouse Utilization and Transportation Capacity metrics as well as in the overall LMI index, with Downstream firms anticipating higher rates of growth across all three metrics. This may point to belt-tightening among retailers as they attempt to cut costs in line with slowing consumer spending while also attempting to work through their overstocked goods. While there were not all statistically significant, Downstream firms predict double-digit higher increases for both Transportation Utilization and Prices. This could point to a situation similar to what we observed in 2019 when the freight market remained hot for the consumer economy, but B2B activity slowed down. The anticipation of continued consumer growth could mean that the high rates of utilization point to a readjustment back towards a strategy of logistics consolidation and achieving economies of scale, with a potential shift away from the service at all costs attitude that have been pervasive over the last two years.
Historic Logistics Managers’ Index Scores
This period’s along with prior readings from the last two years of the LMI are presented table below. The values have been updated to reflect the method for calculating the overall LMI:
This period’s along with prior readings from the last two years of the LMI are presented table below. The values have been updated to reflect the method for calculating the overall LMI:
LMI®
The overall LMI reads in at 60.7 in July, down (-4.3) from June. This is the lowest overall reading since May of 2020, at the height of COVID-19 lockdown. This is down 13.8 points from this time last year, and below the all-time average rate of expansion of 65.2. The overall index has ticked steadily down since registering the all-time high reading of 76.2 in March. We have not seen a score in the 50’s since May of 2020, but if the index continues on its current trajectory we may cross that threshold again in August. That being said, peak season is coming soon, and it will be interesting to observe whether this is the short-term nadir for the index, of it will continue its downward slide.
Respondents expect a continued rate of moderate expansion through the next 12 months, predicting a growth rate of 62.1, up (+1.7) from June’s future prediction of 60.4. This is consistent with recent statements from economists and industry experts expecting a muted but steady rate of growth through the next year.
The overall LMI reads in at 60.7 in July, down (-4.3) from June. This is the lowest overall reading since May of 2020, at the height of COVID-19 lockdown. This is down 13.8 points from this time last year, and below the all-time average rate of expansion of 65.2. The overall index has ticked steadily down since registering the all-time high reading of 76.2 in March. We have not seen a score in the 50’s since May of 2020, but if the index continues on its current trajectory we may cross that threshold again in August. That being said, peak season is coming soon, and it will be interesting to observe whether this is the short-term nadir for the index, of it will continue its downward slide.
Respondents expect a continued rate of moderate expansion through the next 12 months, predicting a growth rate of 62.1, up (+1.7) from June’s future prediction of 60.4. This is consistent with recent statements from economists and industry experts expecting a muted but steady rate of growth through the next year.
Inventory Levels
The Inventory Level value is 68.8, down (-3.0) from June’s reading of 71.8, and down significantly (-11.4) from the index’s all-time highest value recorded this March. There are signs of a slowdown in what had been out of control inventory growth as the current value is a mere 2.4 points higher than the same time last year. This means that seasonally speaking, inventories are increasing only slightly more quickly than one year ago That being said, the current reading is above the all-time average value for this metric of 62.5. This month, upstream respondents reported greater inventory growth by 5.1 pts, (70.8 vs 65.7). Upstream inventories continue to increase more quickly than their Downstream counterparts, creating difficulties for wholesalers and distributors.
When asked to predict what conditions will be like 12 months from now, the average value is 64.8, up from last months’ value (59.5). Downstream predictions for growth are significantly higher (71.4 vs 61.5). Last month, upstream was slightly higher, (60.3 vs 57.9). The average predicted value of 61.2 is lower than the current actual value of 68.8, and would be slightly lower than the average value from the past six years. This means respondents expect inventory growth to be slower over the next year than in past two.
The Inventory Level value is 68.8, down (-3.0) from June’s reading of 71.8, and down significantly (-11.4) from the index’s all-time highest value recorded this March. There are signs of a slowdown in what had been out of control inventory growth as the current value is a mere 2.4 points higher than the same time last year. This means that seasonally speaking, inventories are increasing only slightly more quickly than one year ago That being said, the current reading is above the all-time average value for this metric of 62.5. This month, upstream respondents reported greater inventory growth by 5.1 pts, (70.8 vs 65.7). Upstream inventories continue to increase more quickly than their Downstream counterparts, creating difficulties for wholesalers and distributors.
When asked to predict what conditions will be like 12 months from now, the average value is 64.8, up from last months’ value (59.5). Downstream predictions for growth are significantly higher (71.4 vs 61.5). Last month, upstream was slightly higher, (60.3 vs 57.9). The average predicted value of 61.2 is lower than the current actual value of 68.8, and would be slightly lower than the average value from the past six years. This means respondents expect inventory growth to be slower over the next year than in past two.
Inventory Costs
The Inventory Costs index reads in at 79.0, down (-4.8) from June’s reading of 83.8. The last four months have seen a slowing, yet still quite high rate of growth from the record high value in March – staying above the all-time metric average of 74.9. Interestingly, July’s value is down 9.8 points from the value last year, and up 9.9 points compared to two years ago, splitting the difference between 2020’s constrictions and 2021’s runaway train of an economy.
Responses from participants are consistent with this prediction, and predict strong increases in inventory costs. Downstream respondents were 6.3 points higher than downstream (82.9 vs 76.6), giving an average value of 78.5. These values reflect expected continued inventory cost growth, and are very close to the current inventory cost index value of 79.0. Respondents expect inventory costs to continue to grow for the next 12 months, and as quickly as currently. Given that forward-looking inventory growth is expected to slow, one might expect that inventory cost growth would also slow. Putting all of these factors together, it seems very likely that the Inventory Cost index will continue to remain high, whether they will be as high as they have been will likely largely depend on how large the expected increase in interest rates is, and how much this impacts inventory decisions.
The Inventory Costs index reads in at 79.0, down (-4.8) from June’s reading of 83.8. The last four months have seen a slowing, yet still quite high rate of growth from the record high value in March – staying above the all-time metric average of 74.9. Interestingly, July’s value is down 9.8 points from the value last year, and up 9.9 points compared to two years ago, splitting the difference between 2020’s constrictions and 2021’s runaway train of an economy.
Responses from participants are consistent with this prediction, and predict strong increases in inventory costs. Downstream respondents were 6.3 points higher than downstream (82.9 vs 76.6), giving an average value of 78.5. These values reflect expected continued inventory cost growth, and are very close to the current inventory cost index value of 79.0. Respondents expect inventory costs to continue to grow for the next 12 months, and as quickly as currently. Given that forward-looking inventory growth is expected to slow, one might expect that inventory cost growth would also slow. Putting all of these factors together, it seems very likely that the Inventory Cost index will continue to remain high, whether they will be as high as they have been will likely largely depend on how large the expected increase in interest rates is, and how much this impacts inventory decisions.
Warehousing Capacity
The Warehousing Capacity metric reads in at 47.0 in July, up (+6.0) from June’s reading of 41.0. This metric has been in a state of contraction since August of 2020, as high Inventory Levels and a long-lead time on building new space has made it difficult for supply to keep up with demand. It is likely that warehouse space will remain stretched through the rest of the year as we being to move into the traditional peak season. However, it will be interesting to observe if this market can reach some sort of equilibrium post-holidays. If 2023 sees lower rates of consumer spending than 2021, and a less severe inventory bullwhip than 2022, there is a chance that this dream of inventory managers everywhere could come true.
Looking forward at the next 12 months, respondents continue to expect moderate rates of growth, predicting an expansionary rate of 51.5, down (-3.9) from June’s future prediction of 55.4. As we will see below, respondents are become cautiously optimistic that increased capacity will also lead to slowing cost growth over the next year, providing a welcome relief throughout supply chains.
The Warehousing Capacity metric reads in at 47.0 in July, up (+6.0) from June’s reading of 41.0. This metric has been in a state of contraction since August of 2020, as high Inventory Levels and a long-lead time on building new space has made it difficult for supply to keep up with demand. It is likely that warehouse space will remain stretched through the rest of the year as we being to move into the traditional peak season. However, it will be interesting to observe if this market can reach some sort of equilibrium post-holidays. If 2023 sees lower rates of consumer spending than 2021, and a less severe inventory bullwhip than 2022, there is a chance that this dream of inventory managers everywhere could come true.
Looking forward at the next 12 months, respondents continue to expect moderate rates of growth, predicting an expansionary rate of 51.5, down (-3.9) from June’s future prediction of 55.4. As we will see below, respondents are become cautiously optimistic that increased capacity will also lead to slowing cost growth over the next year, providing a welcome relief throughout supply chains.
Warehousing Utilization
The Warehousing Utilization index read in at 68.8, down very slightly (-0.3) from June’s reading of 69.1. Utilization rates have remained very steady over the last two years, staying within a range of 12 points between 63.6 and 75.5, all rates that indicate solid to significant rates of expansion. Although as pointed out above, we did observe a 13.6-point swing in the Warehousing Utilization responses received in the last week of July relative to the rest of the month, something that could be representative of respondents feeling the need to cut some costs by increasing utilization in the face of inflation. In addition, and much like the capacity reporting above, there is not a meaningful difference between upstream and downstream. This increase also may be a result of the reported increases in retail inventory over the past several weeks/months. The dynamics of how retailers clear out this inventory (i.e. the secondary and discount markets) will be interesting to observe, particularly as it relates to capacity and utilization.
Looking forward at the next 12 months, the predicted Warehousing Utilization index is 71.5, up (+6.5) from June’s future prediction of 65.0, and perhaps reflecting the cost-cutting initiatives discussed above. Interestingly, Downstream firms are anticipating much greater rates of utilization than their Upstream counterparts (80.3 to 67.4), a trend we will see continue in the future predictions for the transportation metrics.
The Warehousing Utilization index read in at 68.8, down very slightly (-0.3) from June’s reading of 69.1. Utilization rates have remained very steady over the last two years, staying within a range of 12 points between 63.6 and 75.5, all rates that indicate solid to significant rates of expansion. Although as pointed out above, we did observe a 13.6-point swing in the Warehousing Utilization responses received in the last week of July relative to the rest of the month, something that could be representative of respondents feeling the need to cut some costs by increasing utilization in the face of inflation. In addition, and much like the capacity reporting above, there is not a meaningful difference between upstream and downstream. This increase also may be a result of the reported increases in retail inventory over the past several weeks/months. The dynamics of how retailers clear out this inventory (i.e. the secondary and discount markets) will be interesting to observe, particularly as it relates to capacity and utilization.
Looking forward at the next 12 months, the predicted Warehousing Utilization index is 71.5, up (+6.5) from June’s future prediction of 65.0, and perhaps reflecting the cost-cutting initiatives discussed above. Interestingly, Downstream firms are anticipating much greater rates of utilization than their Upstream counterparts (80.3 to 67.4), a trend we will see continue in the future predictions for the transportation metrics.
Warehousing Prices
The Warehousing Prices index read in at 76.2 for July 2022, down (-2.2) from June’s reading of 78.4, this comes on the heels of the 9.1-point decrease we observed from May to June. Once again, we see the 2022 reading splitting difference of the robust growth of July 2021 (when this metric read in at 88.0), and beginnings of the recovery in July 2020 (when this metric read in at 67.5). This still comes in above the all-time average of 75.4 for this metric, and indicates that firms are still experiencing significant rates of growth for Warehousing Prices. It will be interesting to observe how this metric moves over the next few months, as the August and September readings are generally those which provide insight into the forthcoming holiday season.
Future predictions suggest that respondents are expecting prices to continue to grow at a rate of 73.8, down (-2.8) from June’s future prediction of 76.6. Respondent attitudes have clearly changed as of late, especially in contrast to April’s future prediction of 86.7. Respondents are still anticipating growth, although clearly there is some optimism that as inventories wind down and more facilities come online, that the rate of growth will slow to a more sustainable pace. it will be slower growth, leading to more affordable storage options.
The Warehousing Prices index read in at 76.2 for July 2022, down (-2.2) from June’s reading of 78.4, this comes on the heels of the 9.1-point decrease we observed from May to June. Once again, we see the 2022 reading splitting difference of the robust growth of July 2021 (when this metric read in at 88.0), and beginnings of the recovery in July 2020 (when this metric read in at 67.5). This still comes in above the all-time average of 75.4 for this metric, and indicates that firms are still experiencing significant rates of growth for Warehousing Prices. It will be interesting to observe how this metric moves over the next few months, as the August and September readings are generally those which provide insight into the forthcoming holiday season.
Future predictions suggest that respondents are expecting prices to continue to grow at a rate of 73.8, down (-2.8) from June’s future prediction of 76.6. Respondent attitudes have clearly changed as of late, especially in contrast to April’s future prediction of 86.7. Respondents are still anticipating growth, although clearly there is some optimism that as inventories wind down and more facilities come online, that the rate of growth will slow to a more sustainable pace. it will be slower growth, leading to more affordable storage options.
Transportation Capacity
The Transportation Capacity Index registered 69.1 percent in July 2022. This constitutes a jump of 7.4 e points from the June reading of 61.7. With this increase, the Transportation Capacity index reached a new 3-year high. The Transportation Capacity expansion can be observed across the supply chain, with the Upstream index indicating 70.1 and Downstream index indicating 67.6.
The future Transportation Capacity Index also indicates expansion, registering 61.6, up (+5.0) from June’s future prediction of 56.6. Upstream predict a more rapid expansion in future Transportation Capacity, registering 66.4 while Downstream firms indicate a future expectation of only 52.9. Upstream firms seem to be expecting a bit of a break from the pressures of the past two years, while Downstream firms might expect to continue to be busy with deliveries and high customer service expectations.
The Transportation Capacity Index registered 69.1 percent in July 2022. This constitutes a jump of 7.4 e points from the June reading of 61.7. With this increase, the Transportation Capacity index reached a new 3-year high. The Transportation Capacity expansion can be observed across the supply chain, with the Upstream index indicating 70.1 and Downstream index indicating 67.6.
The future Transportation Capacity Index also indicates expansion, registering 61.6, up (+5.0) from June’s future prediction of 56.6. Upstream predict a more rapid expansion in future Transportation Capacity, registering 66.4 while Downstream firms indicate a future expectation of only 52.9. Upstream firms seem to be expecting a bit of a break from the pressures of the past two years, while Downstream firms might expect to continue to be busy with deliveries and high customer service expectations.
Transportation Utilization
The Transportation Utilization Index registered 59.3 percent in July 2022. This denotes a small increase of 0.9 percent from the 58.4 level registered in June. Despite this small increase, the Transportation Utilization index is still significantly down from the highs observed through late 2021. Downstream Transportation Utilization Index is at 64.7, while the Upstream index is at 56.7. It seems the utilization index is easing off the recent highs, with the decrease being slightly more accentuated for Upstream firms.
The future Transportation Utilization Index indicates continuing expectations of slight expansion, at a 62.4 level, up (+2.3) from June’s future prediction of 60.1. Once again, the anticipated pullback in the futures index is also accentuated for Upstream firms, with Downstream future index indicating 69.1 and upstream indicating 59.1. We observed a similar phenomenon in 2019, which Downstream demand remained high in the face of slowing Upstream activity.
The Transportation Utilization Index registered 59.3 percent in July 2022. This denotes a small increase of 0.9 percent from the 58.4 level registered in June. Despite this small increase, the Transportation Utilization index is still significantly down from the highs observed through late 2021. Downstream Transportation Utilization Index is at 64.7, while the Upstream index is at 56.7. It seems the utilization index is easing off the recent highs, with the decrease being slightly more accentuated for Upstream firms.
The future Transportation Utilization Index indicates continuing expectations of slight expansion, at a 62.4 level, up (+2.3) from June’s future prediction of 60.1. Once again, the anticipated pullback in the futures index is also accentuated for Upstream firms, with Downstream future index indicating 69.1 and upstream indicating 59.1. We observed a similar phenomenon in 2019, which Downstream demand remained high in the face of slowing Upstream activity.
Transportation Prices
The Transportation Prices Index read in at 49.5 in July 2022, down (11.8) from June’s reading of 61.3, and pushing the Transportation Prices Index into contraction territory for the first time in two years. The price index drop is slightly more pronounced for Upstream supply chain firms, with the Upstream price index at 47.8, Downstream respondents continue to see growth at a rate of 54.3. As mentioned above, responses garnered in the last week of July came in 8.0 points higher than those from earlier in the month. We will continue to watch this space to determine whether this late July surge was an aberration, or a sign of breaking form the usual July doldrums and peak season coming over the horizon.
The future index for Transportation Prices indicates remains above the critical level of 50.0, reading in at 58.7, down slightly (-0.9) from June’s future prediction of 59.6. Once again, we see a big difference in Upstream and Downstream expectations. Downstream firms are predicting a return to rapid growth with a 67.1, while Upstream firms are anticipating a more moderate movement of 54.5 over the next year.
The Transportation Prices Index read in at 49.5 in July 2022, down (11.8) from June’s reading of 61.3, and pushing the Transportation Prices Index into contraction territory for the first time in two years. The price index drop is slightly more pronounced for Upstream supply chain firms, with the Upstream price index at 47.8, Downstream respondents continue to see growth at a rate of 54.3. As mentioned above, responses garnered in the last week of July came in 8.0 points higher than those from earlier in the month. We will continue to watch this space to determine whether this late July surge was an aberration, or a sign of breaking form the usual July doldrums and peak season coming over the horizon.
The future index for Transportation Prices indicates remains above the critical level of 50.0, reading in at 58.7, down slightly (-0.9) from June’s future prediction of 59.6. Once again, we see a big difference in Upstream and Downstream expectations. Downstream firms are predicting a return to rapid growth with a 67.1, while Upstream firms are anticipating a more moderate movement of 54.5 over the next year.
About This Report
The data presented herein are obtained from a survey of logistics supply executives based on information they have collected within their respective organizations. LMI® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.
Data and Method of Presentation
Data for the Logistics Manager’s Index is collected in a monthly survey of leading logistics professionals. The respondents are CSCMP members working at the director-level or above. Upper-level managers are preferable as they are more likely to have macro-level information on trends in Inventory, Warehousing and Transportation trends within their firm. Data is also collected from subscribers to both DC Velocity and Supply Chain Quarterly as well. Respondents hail from firms working on all six continents, with the majority of them working at firms with annual revenues over a billion dollars. The industries represented in this respondent pool include, but are not limited to: Apparel, Automotive, Consumer Goods, Electronics, Food & Drug, Home Furnishings, Logistics, Shipping & Transportation, and Warehousing.
Respondents are asked to identify the monthly change across each of the eight metrics collected in this survey (Inventory Levels, Inventory Costs, Warehousing Capacity, Warehousing Utilization, Warehousing Prices, Transportation Capacity, Transportation Utilization, and Transportation Prices). In addition, they also forecast future trends for each metric ranging over the next 12 months. The raw data is then analyzed using a diffusion index. Diffusion Indexes measure how widely something is diffused, or spread across a group. The Bureau of Labor Statistics has been using a diffusion index for the Current Employment Statics program since 1974, and the Institute for Supply Management (ISM) has been using a diffusion index to compute the Purchasing Managers Index since 1948. The ISM Index of New Orders is considered a Leading Economic Indicator.
We compute the Diffusion Index as follows:
PD = Percentage of respondents saying the category is Declining,
PU = Percentage of respondents saying the category is Unchanged,
PI = Percentage of respondents saying the category is Increasing,
Diffusion Index = 0.0 * PD + 0.5 * PU + 1.0 * PI
For example, if 25 say the category is declining, 38 say it is unchanged, and 37 say it is increasing, we would calculate an index value of 0*0.25 + 0.5*0.38 + 1.0*0.37 = 0 + 0.19 + 0.37 = 0.56, and the index is increasing overall. For an index value above 0.5 indicates the category is increasing, a value below 0.5 indicates it is decreasing, and a value of 0.5 means the category is unchanged. When a full year’s worth of data has been collected, adjustments will be made for seasonal factors as well.
Logistics Managers Index
Requests for permission to reproduce or distribute Logistics Managers Index Content can be made by contacting in writing at: Dale S. Rogers, WP Carey School of Business, Tempe, Arizona 85287, or by emailing dale.rogers@asu.edu Subject: Content Request.
The authors of the Logistics Managers Index shall not have any liability, duty, or obligation for or relating to the Logistics Managers Index Content or other information contained herein, any errors, inaccuracies, omissions or delays in providing any Logistics Managers Index Content, or for any actions taken in reliance thereon. In no event shall the authors of the Logistics Managers Index be liable for any special, incidental, or consequential damages, arising out of the use of the Logistics Managers Index. Logistics Managers Index, and LMI® are registered trademarks.
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. It is authored by Zac Rogers Ph.D., Steven Carnovale Ph.D., Shen Yeniyurt Ph.D., Ron Lembke Ph.D., and Dale Rogers Ph.D.
The data presented herein are obtained from a survey of logistics supply executives based on information they have collected within their respective organizations. LMI® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.
Data and Method of Presentation
Data for the Logistics Manager’s Index is collected in a monthly survey of leading logistics professionals. The respondents are CSCMP members working at the director-level or above. Upper-level managers are preferable as they are more likely to have macro-level information on trends in Inventory, Warehousing and Transportation trends within their firm. Data is also collected from subscribers to both DC Velocity and Supply Chain Quarterly as well. Respondents hail from firms working on all six continents, with the majority of them working at firms with annual revenues over a billion dollars. The industries represented in this respondent pool include, but are not limited to: Apparel, Automotive, Consumer Goods, Electronics, Food & Drug, Home Furnishings, Logistics, Shipping & Transportation, and Warehousing.
Respondents are asked to identify the monthly change across each of the eight metrics collected in this survey (Inventory Levels, Inventory Costs, Warehousing Capacity, Warehousing Utilization, Warehousing Prices, Transportation Capacity, Transportation Utilization, and Transportation Prices). In addition, they also forecast future trends for each metric ranging over the next 12 months. The raw data is then analyzed using a diffusion index. Diffusion Indexes measure how widely something is diffused, or spread across a group. The Bureau of Labor Statistics has been using a diffusion index for the Current Employment Statics program since 1974, and the Institute for Supply Management (ISM) has been using a diffusion index to compute the Purchasing Managers Index since 1948. The ISM Index of New Orders is considered a Leading Economic Indicator.
We compute the Diffusion Index as follows:
PD = Percentage of respondents saying the category is Declining,
PU = Percentage of respondents saying the category is Unchanged,
PI = Percentage of respondents saying the category is Increasing,
Diffusion Index = 0.0 * PD + 0.5 * PU + 1.0 * PI
For example, if 25 say the category is declining, 38 say it is unchanged, and 37 say it is increasing, we would calculate an index value of 0*0.25 + 0.5*0.38 + 1.0*0.37 = 0 + 0.19 + 0.37 = 0.56, and the index is increasing overall. For an index value above 0.5 indicates the category is increasing, a value below 0.5 indicates it is decreasing, and a value of 0.5 means the category is unchanged. When a full year’s worth of data has been collected, adjustments will be made for seasonal factors as well.
Logistics Managers Index
Requests for permission to reproduce or distribute Logistics Managers Index Content can be made by contacting in writing at: Dale S. Rogers, WP Carey School of Business, Tempe, Arizona 85287, or by emailing dale.rogers@asu.edu Subject: Content Request.
The authors of the Logistics Managers Index shall not have any liability, duty, or obligation for or relating to the Logistics Managers Index Content or other information contained herein, any errors, inaccuracies, omissions or delays in providing any Logistics Managers Index Content, or for any actions taken in reliance thereon. In no event shall the authors of the Logistics Managers Index be liable for any special, incidental, or consequential damages, arising out of the use of the Logistics Managers Index. Logistics Managers Index, and LMI® are registered trademarks.
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. It is authored by Zac Rogers Ph.D., Steven Carnovale Ph.D., Shen Yeniyurt Ph.D., Ron Lembke Ph.D., and Dale Rogers Ph.D.
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