October 4, 2023

Declines in transportation prices slow again in September


Another sign of a potential inflection point in the freight cycle was provided Tuesday in a report highlighting data compiled in the Logistics Managers’ Index (LMI).

“The freight recession is still ongoing, but in a continuation of what we have observed since late July it seems that cracks in the recession are beginning to form,” the report read.

Transportation prices (43.5) fell again in September but the rate of decline has improved from the record pace set in May. The data set was down just 1 percentage point year over year (y/y) during the month. Downstream companies closer to the consumer (retailers) returned a neutral pricing reading of 50 compared to a 39.7 reading from upstream companies (wholesalers and manufacturers).

The survey of supply chain executives is a diffusion index. A reading above 50 indicates expansion while one below 50 signals contraction.

The transportation pricing subindex stood at 46.8 during the last two weeks of September compared to a 38.5 reading in the first half of the month. When asked to peg transportation rates one year from now, respondents returned a reading of 69.4.

“If downstream firms do move into a state of expansion in the coming months, the chance that we break out of the ongoing freight recession will continue to increase.”

Transportation capacity (64.3) increased 3.8 percentage points in September from August’s 16-month low even as transportation utilization (53.5) expanded by a similar amount.

Chart: (SONAR: OTRI.USA). A proxy for truck capacity, the Outbound Tender Reject Index, shows the number of loads being rejected by carriers. Carriers are currently rejecting only 4% of all loads tendered under contract. To learn more about FreightWaves SONAR, click here.
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. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel. Spot rates are currently 17% lower y/y.

The overall LMI (52.4) expanded for a second straight month and was 1.2 points higher than in August. But the new level established in September is still well below the 7-year-old index’s historical average of 62.9.

“This second consecutive expansion provides further evidence suggesting that the move towards growth in August was not a one-off occurrence and may have marked a turning point back towards growth in the logistics industry,” the report said.

The report said it is unlikely for the index to retreat in the seasonally stronger fourth quarter but acknowledged that a government shutdown or widespread strikes among auto workers could weigh on the data set.

Inventory levels (47.4) declined slightly again during September but remained in contraction territory for a fifth straight month. However, inventories at companies with more than 1,000 employees expanded modestly, with the group logging a 51.6 reading. That compared to a contractionary, 40.2 inventory level at small firms.

The total reading for inventories was 24.5 points lower y/y.

Inventory costs (64.6) expanded again but at a pace that was 4.5 points lower than in August. The change was largely due to the reduction in overall stock levels.

Warehousing metrics drove the bulk of the change in the LMI during September.

Even as industrial vacancy rates tick higher, warehousing prices (71.2) jumped 7.9 points to the highest level since February. Warehouse capacity (57.3) grew at a slower pace while utilization (60.9) stepped higher again.

Future warehouse rents are expected to remain elevated as survey respondents returned a 71.5 reading for the index one year from now. The forecast was up 5.1 points from August.

Warehouse utilization was nearly 11 points higher at downstream companies, suggesting that “consumer-facing firms are filling up warehouses with goods — potentially foreshadowing an expectation of consumer demand for goods during the holiday season.”

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

More FreightWaves articles by Todd Maiden

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