CSCMP's Supply Chain Quarterly
Logistics
January 19, 2020
Forward Thinking

Logistics economy expands in November

Comment
Slow pace of growth continues; industry professionals report positive outlook for 2020.

Business activity in the logistics sector grew in November, although at the same slow pace of the last few months, according the latest Logistics Manager's Index report, released Tuesday.

The LMI registered 54.5, barely above October's reading of 54.4, the lowest level since the index launched in 2016. A reading above 50 indicates expansion in the logistics sector; a reading below 50 indicates contraction.

LMI researcher and Colorado State University professor Zac Rogers said the industry continues to reflect a mix of strong consumer economic performance and slowing manufacturing growth, putting it in a slow-growth phase. Seven of the LMI's eight metrics were down compared with October.

Transportation prices contracted in November to a reading of 41, down 2.5% compared with October and their lowest level in the history of the LMI. Inventory levels remained in growth territory, but were lower than expected at this time of year, Rogers said. October's inventory levels index registered 54.3, down from 55.1 in October and down nearly 8% compared to a year ago and nearly 17% compared to two years ago. Rogers said the results could indicate a build-up of inventory over the summer to avoid tariffs in the ongoing U.S.-China trade war, but added that the same effect should be occurring now in advance of tariffs scheduled to take effect later this month. 

"For some items, you'd think companies would be building up inventory, so you wonder why that's not happening," Rogers said. "Inventory is still growing, just at a much lower level [than expected]."

On the flip side, the industry continues to show strong demand for warehousing. The LMI warehousing prices index rose 3% to a reading of 68.3 in November while warehousing capacity and utilization levels fell, indicating demand for warehouse space from both retailers and manufacturers, Rogers said.

Despite the current slow growth, logistics professionals said they are optimistic about business conditions over the next 12 months. The LMI future predictions index registered 62.1, well above the 50-point threshold indicating growth and 14% higher than the current LMI reading.

"This month, the future expectations are higher relative to current conditions than we've seen in the past," Rogers said, indicating a positive 2020 outlook industry-wide.

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).

Victoria Kickham, an editor at large for Supply Chain Quarterly, started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for Supply Chain Quarterly's sister publication, DC Velocity.

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