Transportation capacity hit high-water mark in October, survey says

Transportation capacity grew at the fastest pace recorded, according to a monthly survey of logistics professionals.

The Logistics Managers’ Index (LMI) registered a capacity reading of 73.1 during October, 1.3 percentage points higher than September and the highest growth rate recorded by the 6-year-old data set.

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

“Similar to what we noted last month, inventory seems to be sitting idly (primarily downstream) clogging warehouses where retailers hope for a busy Q4,” the report read. “The flipside of that is that the normal peak season for carriers has not materialized, as there has been less to move than we would usually see during this time of year.”

The September LMI report called out unseasonal demand weakness in the back half of the month. Peak season sentiment from truckload carriers turned from constructive at an investor conference in early September to tepid by mid-October when the group began reporting third-quarter results.

“Even during the freight recession of 2019, we did not observe capacity coming online this quickly,” the report continued. The 12-month forward-looking expectation around capacity increased 1.8 points to 67.1 during the month. “Without a significant increase in consumer activity over the holiday season, it is unclear when this will change.”

Chart: (SONAR: OTRI.USA) A proxy for truck capacity, the Outbound Tender Reject Index, shows the number of loads being rejected by carriers. The index has fallen to just 4.5% compared to a year ago when fleets were rejecting 20% of loads under contract. To learn more about FreightWaves SONAR, click here.

Capacity growth accelerated as October progressed, registering a 76.7 reading in the back half of the month compared to 68.8 during the first two weeks.

“Much like last month, we see a statistically significant increase in the availability of Transportation Capacity in the second half of the month. This suggests that more and more fleets are idling as we move deeper into Q4 — something that is highly unusual for this time of year.”

The transportation prices subindex fell again in October, down 2.3 points to 42.2. The latest reading was a two-year low for the data set. The subindex has fallen in seven consecutive months and has been in contraction territory the past four months.

Respondents were less decisive on forward-looking expectations for pricing, retuning a near-neutral reading of 49.5.

Transportation utilization (52.8) continued to expand but was 8.3 points lower sequentially. The report said the quick reversal in October, following a 9.5-point jump in September, was indicative of “supply chains pushing goods downstream to position them closer to consumers ahead of Q4” last month.

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 read in at 57.5 in October, 3.9 points lower than September and the lowest reading since “the height of COVID-19 lockdowns” in May 2020.

“Like September, transportation metrics continue to be a drag on the logistics industry, while inventories remain high, warehouses remain full, and they both remain expensive.”

Inventories (65.5) grew at the slowest pace since December, down 6.4 points in October. Inventory costs (80.9) stepped higher again, up 3.7 points, and continue to be elevated due to an increased amount of merchandise in storage along with higher warehouse rents.

“It is good that inventories are starting to dwindle, but until they can be brought down further — possibly through increased consumer activity in November and December — inventories on hand will continue to add significant cost to supply chains.”

Warehousing prices (75.5) ticked slightly higher as warehousing capacity (44.7) remained constrained. Warehouse space has been in contraction for 26 straight months, according to the data.

Warehousing utilization (60.8) plummeted 16 points in the month. There is a two- to three-month lag between changes in utilization and prices, meaning more space could be being placed back into the market, ultimately taking rents lower. Or, it could mean that firms have had success drawing down inflated inventory levels through discounting and promotions, the report concluded.

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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