Chart of the Week: Logistics Managers’ Index – Transportation Capability, Transportation Prices SONAR: LMI.TPCP, LMI.TPPR
When the Logistics Managers’ Index (LMI) transportation capability component falls below the transportation price figure, capability is comparatively tight. When the inverse is true, capability is usually loose. The past few months are trending toward one other flip which will suggest equilibrium of supply and demand is closer than we thought within the transportation market.
The LMI has proven to be very accurate in describing domestic transportation market conditions over the past several years. In the widely soft 2019 market, the value index was below the capability index. In June 2020, the 2 components flipped and remained in strong opposition until March 2022.
The LMI is a diffusion index based on surveys of greater than 300 supply chain professionals measuring various components of the transportation and logistics space. Values above 50 indicate expansion, while sub-50 readings are indicative of contraction.
Essentially the most recent October reading for prices was 44.4, indicating that prices were contracting but at a much slower pace than the 28 that was printed in April. The October capability value was 56.7, which was down significantly from the 71 that occurred in May.
As you’ll be able to tell, over the past five years, there was little balance within the transportation markets, moving violently from very tight to very loose. COVID may be blamed for many of this. The 2017-18 market was also very tight but was considered a “black swan” kind of environment on the time.
The truth is that the economic stability (or stagnation depending in your perspective) of the post-2009 recession could have been the true anomaly. Economically speaking, there are more questions than answers and that can keep firms on edge and more susceptible to erratic behavior — especially in shipping.
On this past week’s Freightonomics, Zac Rogers, assistant professor of supply chain management at Colorado State University and contributor to the LMI, talked about how shippers have reverted to more of a just-in-time pattern of shipping as demand stays uncertain and warehousing costs have increased.
He also cited how Yellow’s exit has seemingly helped speed up the perception of a decline in available capability and propped prices at higher levels. One thing that isn’t clear is to what scale this is happening.
Tender rejection rates, which measure the speed carriers reject or turn down requests for truckload capability from their customers, bottomed in May as well and have been trending higher since then — suggesting the correlation between Yellow’s exit might be spurious to some extent.
Whatever the reasoning, there are multiple data sources painting the identical picture. Capability is tightening, though still not enough to generate disruption — yet. The larger query stays around just when will freight market participants feel some noticeable and more consistent service disruptions.
Caveats are all the time a thing
Possibly probably the most uncertain aspect of predicting a freight market turn is the underlying economics. The advance release of the Q3 GDP produced one of the disconnected values in recent history by way of economic perception.
The 4.9% quarterly growth figure seemed somewhat unbelievable within the context that it could normally be considered a worth that’s indicative of an economic boom. However the Federal Reserve economists seemingly dismissed the figure and consumer confidence declined.
The patron spending that fed the figure has change into increasingly leveraged with bank card debt and the labor market is showing signs of weakening as individuals are having increasing difficulties finding employment as continued claims have hit their highest values since late 2021.
Within the near-term future, the gap between the 2 LMI figures may reverse course over the winter if traditional seasonality returns. January and February are inclined to be the slowest months of the 12 months for shipping. This could push demand down, widening the gap between the capability ceiling temporarily.
The gap between the LMI capability and price figures has shrunk from 41 to 12 over a five-month period. The sheer momentum suggests we could also be closer to a market flip than we expect, however the longest yard is all the time the last one.
In regards to the Chart of the Week
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