Logistics industry sees slower growth in August

Economic activity in the logistics industry grew in August, but at a slower rate compared to July, and down markedly from the record-high growth levels earlier in the year, according to the latest Logistics Manager’s Index report (LMI), released this week.

The August LMI registered 59.7, down one percentage point compared to July, and down 16.5 points from its all-time high reading of 76.2 in March. The LMI measures business activity across the industry via a monthly survey of logistics managers, who weigh in on inventory, warehousing, and transportation conditions. An LMI reading above 50 indicates expansion, and a reading below 50 indicates contraction. 

The industry had been experiencing record growth levels from late 2020 through this past spring, when growth began to cool in April and has been slowing ever since. Falling consumer demand, rising inventory levels, and a loosening transportation market are behind the slower-growth conditions.

"The logistics industry is currently facing an interesting mix of decreased consumer demand, but with an abundance of goods throughout supply chain systems. The dynamic at work is somewhat similar to what we saw during the early days of [the Covid-19 pandemic] when distribution networks became constipated with inventories due to an unexpected drop in consumer demand,” the LMI researchers wrote this week. “As always, the story behind this month’s reading is nuanced, with a mix of both positive and negative economic indicators. This mix has resulted in the tightest warehousing market we have seen in years, along with the loosest transportation market.”

Warehousing capacity in August fell nearly five points compared to July to a reading of 42.3, marking two years of contraction as demand for space remains “incredibly strong,” the researchers said. 

Transportation capacity expanded in August, as the index registered 64.3. Although down nearly five points from July, capacity has been expanding since April and reflects a flip from the tight conditions that marked the transportation sector for more than a year and a half. 

Inventory levels were down slightly compared to July, but fell nearly 13 points from the index’s all-time high value this past February. Despite the drops, inventory levels have remained in growth territory for two years. The researchers said inventory levels are growing “more quickly than we might normally expect,” citing a nearly four-point increase compared to August 2021 and a nearly 10-point increase compared to August 2020.

Getting warehousing capacity and inventory levels under control will be key to moving toward more “normal” supply chain conditions, according to the report.

“The supply chain will not truly be ‘back to normal’ until sufficient warehousing capacity comes online. This will be difficult to accomplish,” they wrote in the August report. “[Logistics real estate firm] Prologis’s vacancy rate in the top 30 U.S. markets is sitting at [three percent], well below the normal average somewhere between [five percent and 10 percent]. Many of the facilities are overflowing with goods to the point that operations have become less efficient due to the lack of space to maneuver or transfer inventory across the facility.” 

The LMI tracks logistics industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from 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). Visit the LMI web page for information on participating in the monthly survey.