Chart of the week: Logistics Managers Index – Transportation Capacity, Transportation Prices Sonar: LMI.TPCP, LMI.TPPR
Thank you for reading this post, don't forget to subscribe!A decrease in the transportation capacity component of the Logistics Managers Index (LMI) below the transportation price figure indicates relatively low capacity. Conversely, when the opposite occurs, capacity is generally loose. Over the past few months, there has been a trend suggesting a potential balance of supply and demand in the transportation market.
The LMI has consistently and accurately described domestic transportation market conditions in recent years. In the generally soft 2019 market, the price index was below the capacity index, but both components reversed in June 2020 and remained in strong opposition until March 2022.
LMI is a diffusion index based on a survey of over 300 supply chain professionals measuring various components of the transportation and logistics sector. Values above 50 indicate expansion, while readings below 50 indicate contraction.
The most recent October reading for prices was 44.4, indicating that prices were shrinking but at a much slower pace than the 28 printed in April. The October capacity value was 56.7, significantly lower than the 71 in May.
Over the past five years, there has been minimal balance in transportation markets, fluctuating from very tight to very loose, largely influenced by Covid. The 2017-18 market was also very tight but was considered a “black swan” type of environment at the time.
Economically speaking, the post-2009 recession’s stability may be an anomaly, leading to more questions than answers and potential unregulated behavior, especially in shipping.
In a recent discussion, Zach Rogers, assistant professor of supply chain management at Colorado State University and LMI contributor, highlighted how shippers have reverted to just-in-time shipping patterns due to uncertain demand and increased storage costs.
He also observed that Yellow’s exit has contributed to accelerating the perception of a decline in available capacity and higher prices, although the scale of this effect remains unclear.
Tender rejection rates, measuring the rate at which carriers decline or reject requests for truckload capacity, were at a low in May and have since trended higher, implying a potentially spurious link with Yellow’s exit.
Regardless of the argument, multiple data sources are depicting the same scenario: decreasing capacity, albeit not enough to cause disruption. The key question is when noticeable and more consistent service disruptions will occur in the freight market.
Alerts are ever-present
The most uncertain aspect of predicting changes in the freight market is the underlying economics. The Q3 GDP release generated divergent values, with the 4.9% quarterly growth figure appearing somewhat unbelievable amidst conflicting economic sentiment, leading to declining consumer confidence.
Consumer spending has surged, accompanied by a rise in credit card debt, while the labor market shows signs of weakening, with sustained unemployment claims hitting their highest levels since late 2021.
With the potential return of traditional seasonal conditions, the gap between the two LMI figures may change during winter. January and February typically represent the slowest shipping months, leading to reduced demand and temporary widening of the capacity limits gap.
The gap between LMI capacity and price data has narrowed from 41 to 12 over the five-month period, indicating momentum towards a potential market turnaround, although final progress is always the most challenging.
About the chart of the week
The FreightWaves Chart of the Week presents a selected chart from Sonar that offers a notable data point depicting the state of the freight markets. Each week, a market expert shares a live chart on the front page with commentary, which is then archived on FreightWaves.com for future reference.
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