May sentiment survey sees higher transportation rates but capacity up again

Sentiment on transportation pricing among supply chain executives flipped from contraction to expansion in May, a monthly survey showed on Tuesday. While the pricing data set inflected positively during the month, the capacity subindex stubbornly remained in growth mode as well.

The Logistics Managers’ Index (LMI), a compilation of eight key components of the supply chain, increased 2.7 percentage points from April to a reading of 55.6 in May. The LMI is a diffusion index in which a reading above 50 indicates expansion while one below 50 signals contraction.

The biggest mover was transportation pricing (57.8), where sentiment jumped 13.7 points to the highest level recorded since June 2022. The future indication for pricing, or respondents’ expectations for the next 12 months, was well into growth territory at 70. Importantly, there was virtually no difference in sentiment among upstream (wholesalers and manufacturers) and downstream (retailers) respondents. That is notable as the overall supply chain has been more active at the retail level than it has been at the wholesale level the past couple of months, the report said.

The transportation capacity subindex (57.3) declined 4.1 points sequentially but remained in expansion mode. Further, sentiment around transportation capacity accelerated in the second half of May, logging a 64.2 reading versus 50.9 to start the month.

Sentiment around transportation capacity has grown every month since March 2022.

The transportation utilization subindex (59.2) was up 2.8 points in May. The subindex has expanded in each of the past 10 months. Utilization was much higher among retail companies at 69.4 during the month, 14.3 points higher than that of wholesalers.

“It is encouraging that Transportation Prices are expanding again and are mildly above Capacity,” the report said. “However, we have seen this a few times before in the past 6 months and it has been temporary every time. The freight recession that began in mid-2022 will not be over until Transportation Prices are consistent above Transportation Capacity.”

The future reading for the transportation capacity data set was just barely in expansion territory at 50.9.

The inventory levels subindex (46.5) fell 4.5 points and into contraction territory during the month. The subindex started May slightly positive but fell to a 40 reading in the final two weeks of the month. The inventories measure is down 17.4 points from March’s reading, which was an 18-month high. The decline was logged upstream among wholesalers and manufacturers.

Of the index’s eight components, the subindex for inventory levels was the only one in negative territory in the month.

The inventory costs subindex (65.2) was down 3.3 points sequentially. Elevated inventory costs kept warehouse pricing sentiment (64.9) firmly in growth territory. Sentiment on warehouse capacity (55.6) was up 1.5 points from April while warehouse utilization (64) jumped 8.9 points.

The overall LMI has been above 50 for nine of the past 10 months. The one-year-forward outlook for the data set was 65.5, up 2.8 points from April and “the most optimistic outlook from our respondents in two years of reports.”

“What is clear though, is that the freight market cannot recover unless the recovery is more evenly distributed across the supply chain,” the report said, referring to the sluggishness noted by upstream respondents.

The LMI is a collaboration among Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals.

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