Reported on April 5, the Logistic Manager's Index report for March showed an overall LMI reading of 76.2. That figure is the highest in the history of the index, up (+1.0) from February’s reading of 75.2.
The report is was created by researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
The average over the first quarter of 2022 was 74.5, well above the all-time average of 65.2. The first three months of 2022 have been marked by high levels of inventory, and insufficient capacity to deal with it. This trend started at the end of 2021 when inventories increased by 2.4% in December 2021 – an all-time month-to-month record.
The authors concluded that these results were driven particularly by downstream retailers, who saw inventories up by 4.5% in December, handily outgaining manufacturers and wholesalers (U.S. Census Bureau, 2022). "This influx, combined with a cool-down in consumer demand due to the move away from goods and back towards services with easing COVID restrictions, as well as price pressure due to burgeoning inflation, has left firms with more inventory than they know what to do with," the report said.
Because of this, both Inventory Costs (91.0) and Warehousing Prices (90.5) reached all-time high levels in March. Warehousing Capacity also hit a record in March, reaching an all-time nadir of 36.1 this month. Transportation Prices remain high and Transportation Capacity is still contracting this month.
The authors also note that "this could also mean that we are finally seeing a move away from the unsustainable supply/demand mismatch we have seen over the past 18 months and moving back towards a more viable market equilibrium. While we do observe signs of supply chains turning a corner, only time will tell what is on the other side."
Index Findings
The growth in this month’s index is fueled by metrics from across the index. Continued inventory congestion has driven Inventory Costs, Warehousing Prices, and overall aggregate logistics costs to all-time high levels. This is putting even more pressure on already-constrained capacity. Warehousing Capacity hit an all-time low in March.
Transportation Capacity was headed in that direction too from March 1st – March 15th but seems to have changed course slightly in the back half of the month due to the rapidly increasing cost of fuel.In the last report we remarked on the Russian invasion of Ukraine pushing diesel fuel prices up to $4.01 per gallon at the end of February, which was up $1.07 from 12 months prior. In the month since we’ve written that prices have increased even more than they did in those previous 12 months, with a gallon of diesel reaching an all-time high of $5.25 in mid-March before coming down to $5.185 per gallon at the end of the month[2]. The high price of fuel is being felt across the globe.
Inflation in the U.S. was up 7.9% in February, the highest rate since the 8.4% experienced in January 1982. In mid-March the national average for a gallon of regular gasoline surpassed $4 for the first time since 2008[3]. Similarly, we see prices in the Eurozone were up 7.5% from February to March (after a 5.9% jump in February). The high diesel prices will have an outsized effect on smaller fleets and independent operators. Smaller companies that have limited margins and cannot pay wholesale rates like larger firms will be particularly hard-hit by these costs. The high costs of fuel may end up being the thing that finally slows down the runaway transportation market.
Transportation Capacity in March continued to contract, only up slightly (+1.2) to a level of 45.7. This marks 19 consecutive months, and 22 of the last 24, that available capacity has contracted. However, as we will discuss in detail below, Transportation Capacity did loosen up significantly in the second half of March – even expanding slightly for Upstream respondents. With fuel costs as high as they are it is no surprise that Transportation Utilization is up (+1.2) to 69.7 in March as firms attempt to fill every cubic inch available in each trailer. Finally, Transportation Prices were up very slightly (+0.7) to 89.7. Whereas both Inventory and Warehousing costs have never been higher, and 89.7 is still a staggering rate of growth, this would not be in the top half of scores over the last year. We observe a similar drop-off in Transportation Prices in the second half of March.
Unsurprisingly, Inventory Costs are up (+0.7) to an all-time high of 91.0. There is little indication that this will change anytime soon, as future predictions for Inventory Costs are anticipated to remain very high throughout the next 12 months. The high level of inventory in the system is having a significant impact on warehousing.
Warehousing Capacity is down (-6.3) to 36.1, the lowest reading in the history of the index. Unlike what we’re seeing with transportation, there is no movement towards a softening of capacity or price in the warehousing market. Demand for space seems likely to stay high in the near future, and commodity shortages and international shipping congestion will continue to make it difficult to ramp up production. . Demand for industrial space in the U.S. is up by 24% since 2010. Unfortunately, supply of industrial space is only up 18% over the same period.
Beyond the need for more eCommerce warehouses that are closer to consumers, 75% of existing industrial space is 20 years old or older, and a quarter is 50 years or older, leaving a significant volume of warehouses that need to be refreshed (if not replaced)Until this new capacity comes online, it is likely that we will continue to see Warehousing Utilization increase as it did this month, up (+0.7) to 75.0.
While the future direction of the logistics industry and the overall economy is still speculative, what is known is that right now costs are incredibly high. Aggregate Logistics Prices, which are a combined measure of Inventory, Warehousing, and Transportation Costs read in at 271.3 in March – beating the all-time high score of 271.1 set in November of 2021. The drivers of the high aggregated costs have changed in the four intervening months. The November surge was led by staggering Transportation Prices that read in at 93.2. In March of 2022, Transportation is actually growing at the slowest rate of our three costs, with both Inventory (91.0) and Warehousing (90.5) setting all-time index records with their staggering rates of change.
