U.S. Transportation Prices Signal Expansion for the First Time in 19 Months

The U.S. transportation sector has experienced a notable shift, signaling expansion for the first time in 19 months, according to the Logistics Managers’ Index (LMI) report released on Tuesday.  The LMI, a diffusion index where readings above 50 indicate expansion and below 50 suggest contraction, rose by 5 percentage points to 55.6 in January, with all eight components reflecting growth. The collaborative effort behind the LMI involves Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals.

The growth is attributed to increased inventory restocking, particularly among retailers, following a robust holiday season. This trend is indicative of improved economic sentiments among Americans. The transportation prices subindex recorded a significant upswing, surging by 12.7 points to reach 55.8, firmly entering the growth territory.

While transportation capacity continued to grow, the rate was 8.8 points lower than in December, and transportation utilization witnessed a slight increase. The inversion of transportation prices growing faster than capacity is considered a significant signal of a changing market cycle. The report emphasized the need for sustained growth to officially declare an end to the freight recession but noted that January’s data suggests the logistics industry may be entering a period of growth after the prolonged downturn that began in 2022.

Another positive development highlighted in the report is the indication of inventory levels expanding for the first time in three months. The inventory levels subindex reached 52.8, showing an 8.5-point increase from December. Companies are transitioning from the just-in-case approach, prevalent during the height of the pandemic, to more just-in-time merchandise strategies.

However, upstream providers, particularly manufacturers and wholesalers, reported declines in inventory levels, citing an overhang of semiconductors. Despite the current expansion, they anticipate a return to contraction in the future. Downstream companies, especially retailers, were restocking at a brisk pace.

Inventory costs surged by 11 points from December, primarily driven by the growth in merchandise levels. Warehousing metrics showed mixed trends, with warehousing capacity expanding modestly, utilization tapering from pandemic highs, and prices continuing to grow, albeit at a slower pace.

Respondents expect the LMI to stand at 62.8 one year from now, reflecting a positive outlook and surpassing the index’s average.

Financial Desk