Transportation capacity diminished further in May, according to a supply chain survey. The capacity subindex of the Logistics Managers’ Index fell 50 basis points from April to 32.7%, “indicating continued downward pressure,” the Tuesday report read.
The LMI is a diffusion index wherein a reading above 50% indicates expansion and a reading below 50% indicates contraction.
The overall index, which is designed to capture the rate of change in areas like transportation, inventory and warehousing, declined 3.2 percentage points to 71.3%. The latest reading remains firmly in expansion territory and only 4.4 percentage points off the all-time high.
“The strains of this continued rate of growth is being felt most acutely on price metrics, which continue to grow at a meteoric pace,” the report said. The transportation prices subindex declined 1.4 percentage points to 91.2%, but still at an elevated level indicative of “a furious rate of change.”
Heightened consumer demand and a lack of capacity remain the catalysts for higher transportation rates. A strong consumer wallet and the need for continual inventory replenishment has kept freight flowing while headwinds finding equipment and the drivers to move it constrains capacity.
The latest reading on transportation capacity remained “historically low” as “the tightness that has been observed in the logistics industry over the last 10 months continued unabated in May 2021.” When asked about the availability of capacity one year from now, survey respondents said it would still be contracting. Forward-looking capacity expectations returned a reading of 46.8%, up 2.8 percentage points from April.
The one-year forward outlook for transportation pricing increased 1 percentage point to 87.2%.
Surging demand and the proliferation of e-commerce are keeping warehouse capacity tight. The warehousing capacity subindex climbed 6.5 percentage points to 48.3%, but still in contraction territory even as new space comes online. Warehouse utilization (68.7%) and prices (83.1%) remain elevated.
“This hard shift in economic activity is akin to going from standing still to a full sprint, and as would be expected, it has put tremendous pressure on supply chains. The effects of this are apparent in the ongoing lack of warehouse capacity reported by respondents in May, as inventory rushes in and retailers struggle to keep products on shelves,” the report continued.
The inventory component of the index continued to show expansion at 58.7% but the rate of growth in inventory during May was 8 percentage points lower than in April. Near-record inventory costs (83.8%) and retailers experiencing quicker inventory turns were cited as some of the drivers of the decline in the growth rate of inventories during the month.
According to the latest Census Bureau data, the retailers’ inventories-to-sales ratio fell to 1.1x in March from 1.23x in February, the lowest level for inventories relative to sales in the dataset’s history.
The decline in growth of the LMI’s inventory component also comes as inventory values are getting a boost from inflation. The personal consumption expenditures (PCE) index increased 3.6% year-over-year in April, according to Friday data from the Bureau of Economic Analysis. The subindex, excluding food and energy prices, reached its highest level since 1992, up 3.1% year-over-year.
Chart: LMI & CSCMP
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.