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January 2020 Logistics Managerís Index Tics Up

February 7, 2020

According to a sample of North American logistics executives, growth continued in the first month of the new decade, at a slightly higher rate (+0.16) then in December 2019. This is the second lowest score in the history of the index, reading in at 54.1, up from last monthís reading of 54.0.

The overall LMI score of 54.1 is down (-9.2) from this time a year ago, when it registered at 63.3. The lowest ten scores in the history of the index have all occurred within the last ten months. However, it should be pointed out that every score has been above 50.0, indicating growth in the logistics industry, the growth has just been very slow (and has been trending slower). Logistics metrics, especially those involving transportation and inventory, are global in nature. While the U.S. economy has been bolstered by strong consumer spending, China
[1] and the EU[2] have both slowed down over the last 12 months. It is likely that a soft global economy is one of the primary drivers behind this recent run of slow-growth LMIģ readings.

Researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP) issued this report today. 

Results Overview
The LMI score is a combination eight unique components that make up the logistics industry, including: inventory levels and costs, warehousing capacity, utilization, and prices, and transportation capacity, utilization, and prices. The LMI is calculated using a diffusion index, in which any reading above 50 percent indicates that logistics is expanding; a reading below 50 percent is indicative of a shrinking logistics industry. The latest results of the LMI summarize the responses of supply chain professionals collected in December 2019. Similar to October, six of the eight metrics read in below their historical average. Only Warehouse Prices and Transportation Capacity read in above average.

Transportation metrics continue to be the most dynamic measures in the LMIģ. Transportation Prices are down 2 points to 50.0, indicating neither growth nor contraction during January. There has been virtually no growth in Transportation Prices since last summer. Over the last 9 months, this index has only been higher than 51.0 (close to the lowest amount of growth possible) on once occasion. This is down 43.3 points from last January, when it read in at 93.3. Whether or not Transportation Prices will begin contracting again, or instead hold steady or even grow, remains to be seen. Transportation Capacity was down very slightly (-0.71) to 57.14, which is very consistent with the previous two readings. Transportation hit its second consecutive nadir this month, registering a 46.15. January and December are the only times in the history of the index that this metric has indicated contraction.

Inventory levels show signs of recovery in January, up sharply by 11.96 points. This is almost commensurate with the 12 point decrease we read in December. It seems likely that inventory levels are being built back to where they were before the holiday. That being said, it is worth pointing out that they are still down significantly (-12.1) from this time last year. Inventory levels are still lower than we would expect, but the disparity is not as great as it was in December. Whether these will be effected by the issues stemming from the tragic outbreak of coronavirus remains to be seen. Inventory Costs are up slightly (+2.7) to 66.1, which is 9.6 points lower than this time last year.

Warehousing Capacity is up 4.74 points to 54.7, indicating it is expanding after showing no growth in December. This is likely a combination of retailers slowing down after the holiday and the influx of additional warehouse space that has gone on the market in the last few months. Likely corresponding with the increase in Capacity, Warehousing Prices are down (-3.3) to 69.9 in January. This demonstrates strong levels of growth (although this reading is 7.1 points lower than this time last year). Price growth also likely remains high partially as a function of the high-cost areas where many newer warehouses are being built. Finally, Warehouse Utilization is down somewhat (-1.6), reading in at 58.4.

The index scores for each of the eight components of the Logistics Managersí Index, as well as the overall index score, are presented in the table above. Six of the eight metrics show signs of growth, but many of them are moving at low or considerably decreased rates. The overall LMIģ index score is 0.1 points higher than its lowest point in the history of the index. Our reading indicates a continued trend of slowing yet steady growth in the logistics industry.

 

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​Respondents were asked to predict movement in the overall LMI and individual metrics 12 months from now. Their predictions for future ratings are presented below and, as has become a pattern seem to be somewhat more optimistic than our current readings. Respondents seem to be predicting better times ahead as far as the logistics industry is concerned. 
 
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Historic Logistics Managersí Index Scores

This periodís along with prior readings from the last two years of the LMI are presented table below. The values have been updated to reflect the method for calculating the overall LMI: 
 
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LMIģ

The overall LMI index is 54.1, up very slightly (+0.16) from Decemberís all-time low reading of 53.95. Although this is up slightly, it is down significantly (-9.2) from this time a year ago, when it read in at 63.3. We have seen low scores for the LMI since the Summer, with the lowest ten scores in the history of the index coming in the last ten months. It should be pointed out that although it is down, the logistics industry is still growing, simply at a slower rate than we have measured over the past 41 months.

Respondents predict that over the next year, the LMI will be at 62.8, down slightly (-0.5) from Decemberís future prediction of 63.3, but up significantly from where it is now. Essentially respondents are predicting a regression back to the status quo, as the historical three-year average of the LMI is a very similar 62.2.
 
 
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Inventory Levels

The Inventory Level value is 54.2, which is up 11.9 points from last monthís all-time low value of 42.3, It is also worth noting that this value is 12.1 points below the value one year ago and 6.1 points below the level two years ago at this time. So while some of the increase may be due to a rebuild of inventories post-holiday, we still see lower-than-expected numbers. Interestingly, over the previous year values have declined, but have stabilized around 55 to 54. Four of the last five values have been within 0.9 points of each other.

When asked to predict what will conditions will be like 12 months from now, the average value is 63.2, indicating inventory levels are expected to grow.  This value is virtually unchanged from last monthís year-ahead prediction of 63.3. This indicates that despite current declines, respondents expect values to increase over the next year.
 
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Inventory Costs

It is not surprising that inventory costs have gone along with inventory levels, continuing to grow, but at a slower rates. continued to increase, but at slower rates. The current value is 66.1 down (-2.7) from Decemberís reading of 63.4. While this is up, itís below the long-term average of 71.3 and 9.6 points below the 75.7 value last year at this time, meaning cost growth has fallen significantly in the past year.  

The rate of inventory growth has been slowing in recent months, but inventory costs continue to grow (albeit at an ever-slowing pace). This could be related to the fact that warehousing prices have increased significantly (+4.74). Given the relatively small decrease in inventory levels seen above, and consistent increases in warehousing costs, it seems quite likely that inventory costs will continue to rise.

Responses seem consistent with this hypothesis. When asked about what they expect inventory costs to be like 12 months from now, the index value is 72.9, a significant increase over last monthís value of 66.7.  This value reflects expected continued inventory cost growth. Respondents clearly expect inventory costs to continue to be high for the next 12 months.
 
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Warehousing Capacity

The Warehousing Capacity Index registered 54.7 percent in January 2020.  This represents an increase of 4.7 percentage points from the December 2019 reading of 50,  and a modest increase of over 5  points from the reading one year ago. Also of note, is that this reflects a break in the downward trend of decreasing values which had been falling rather precipitously over the prior three months. This shift could indicate that as we transition out of the holiday season and into the post-holiday season, additional capacity may become available.

Looking forward at the next 12 months, the predicted Warehousing Capacity index is 55.8, down (-5.3) from Decemberís prediction of 61.1. This continues a pattern of ping-ponging back and forth since October when it was at 62.0, down to 47.9 in November, up to 61.1 in December, and down again this month to 55.8. It is unclear what is causing these fluctuations.


 
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Warehousing Utilization

The Warehousing Utilization Index registered 58.4 percent in January 2020.  This represents a minor decrease of 1.6 percentage points from last month, and is down by 7.6 points from the January 2019 reading of 66.0. The decrease in utilization, connected to the increase in capacity may signal that additional resources will continue to open up in the warehousing sector.

Looking forward at the next 12 months, the predicted Warehousing Utilization index is 67.6, down slightly (-2.8) from Decemberís future prediction of 70.4. Respondents appear to be optimistic that utilization will increase over the next year.
 
 
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Warehousing Prices

Warehousing Prices Index registered 69.9 percent in January 2020.  This is up by 3.3 points from the December 2019 reading of 65.6. This reading is also down by 7.1 points from one year ago. This also breaks a 3-month pattern of increased rates of growth in warehousing prices (coinciding with the holiday season). Though still increasing, given the decline in the rate of growth from last month, and taken together with the decreased utilization and  increased capacity, this decrease in the rate of price growth suggests that  the market is shifting after the holiday season, perhaps freeing up resources for the forthcoming months. Stated differently, the market may be responding by pushing prices downward given the freed up capacity and decreased utilization.

Looking forward at the next 12 months, the predicted Warehousing Prices index is 75.0, down slightly (-1.4) from Decemberís future prediction of 76.4. This indicates that firms are not expecting much change in Warehouse Prices over the next 12 months.
 
 
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Transportation Capacity

The Transportation Capacity Index registered 57.1 percent in January 2020.  This is a small decrease of 0.8 percentage points from the December reading of 57.9.  This capacity level is very similar to this time last year, when this metric read in at 58.3. Interestingly, it's up 25.8 points from January/February 2018, when it read in at 31.3.

Looking forward at the next 12 months, the predicted Transportation Capacity index is 46.7, down very minimally (-0.4) from Decemberís future prediction of 47.1. This indicates that respondents are not expecting much slack transportation capacity going forward.

 
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Transportation Utilization

The Transportation Utilization Index continued its decline and registered 46.2 percent in January 2020.  This is a decrease of 1.7 percentage points from the December reading of 47.9. With this additional decrease, the Transportation Utilization Index continues its trend under the 50 percent level, indicating contraction. This latest reading is a new historical low for the Transportation Utilization Index.  

Despite this, when asked to look forward at the next 12 months, respondents predicted Transportation Utilization index will be 58.7, down slightly (-1.9) from Decemberís future prediction of 60.6.
 
 
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Transportation Prices

The Transportation Prices Index registered 50.0 percent in January 2020. This is a decrease of 2.7 percent from the December 2019 transportation prices reading of 52.7. The 50.0 reading indicates that the transportation prices are steady, neither increasing nor decreasing. The transportation market continues to stagnate. In the last nine months there has only been one reading that registered more than a point above 50.0. This is in stark contrast to a year ago, when Transportation Prices read in 43 points higher at 93.1.

Looking forward at the next 12 months, the predicted Transportation Prices index is 67.6, down slightly (-1.2) from Decemberís future prediction of 61.6. Respondents feel that transportation prices will be up sharply in the next year. This is consistent with their prediction that capacity will tighten up as well.
 
 

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