Retailers are finally digging themselves out of an inventory glut—and that could signal the end of the “freight recession.”
The January Logistics Managers’ Index (LMI), released this week, shows that the logistics sector is in a period of expansion across all recorded metrics for the first time since 2019.
Compiled by researchers at Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno in conjunction with the Council of Supply Chain Management Professionals (CSCMP), the report consolidates survey insights from eight areas of the logistics sector, including inventory levels and costs, warehousing capacity, utilization and prices, and transportation capacity, utilization and prices.
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The diffusion index, which characterizes readings above 50 as market expansion and readings below 50 as contraction or shrinkage, reached 55.6 points in January—a five-point increase from the month prior.
“The most significant move is the long-awaited return of Transportation Prices,” which grew 12.7 points into expansion territory—representing the “first appearance on the positive side of the ledger since June of 2022 at the start of the freight recession.”
According to LMI analysts, the increase in pricing has been chiefly driven by retailers looking to pad inventory (up 8.4 points) following an active holiday season. “This inventory rebuild also led to a considerable increase in the expansion of Inventory Costs,” which saw an 11-point jump. “This is a marked shift for Inventory Costs, which registered their lowest reading ever in January at 55.8,” the report said.
Meanwhile, the group’s warehousing insights showed “steady, sustainable rates of expansion” and slow growth rates. “We need to see a longer period of growth to call an official end to the freight recession,” LMI analysts wrote. “However when taken together, January’s report does offer evidence that the logistics industry could be moving back into a period of growth after the long downturn that started in 2022.”
According to the LMI, the biggest shifts throughout the month of January were in transportation metrics. “The freight market was never going to break out of a recession until supply and demand moved back towards equilibrium,” the writers said. “While we are not willing to say that has happened yet, there were some interesting signals in January.”
Transportation prices and transportation capacity inverted throughout the month, with prices rising more quickly than capacity. “Every time there has been an inversion between these two metrics over the 7.5 years of this index it has signaled a shift in the market,” analysts said. While the data indicates expansion, “one point of mild hesitation before declaring the freight recession over are the movements in Transportation Utilization over the month,” they added.
While transportation utilization grew 0.4 percent to 55 points, it tapered off during the last two weeks of the month. The robust expansion of 61 points from Jan. 1 through Jan. 16 petered out on Jan. 17 through Jan. 20, hitting 50 points. “A movement towards negative utilization could signal that supply and demand are not yet in equilibrium and would put a damper on a potential freight recovery,” writers warned.
Asked about their predictions for LMI’s individual metrics over the course of the next 12 months, survey respondents projected optimism, with expectations of future growth throughout 2024. Respondents said they expected to see the overall index grow to 62.8, up 3.9 percent from December’s future prediction. “This would exceed the all-time index average of 62.4 and would represent a healthy rate of expansion,” analysts wrote.
Downstream survey respondents predicted high rates of turnover which could drive inventory costs, warehousing prices and transportation prices over 70 points and into “significant expansion.” Warehousing and transportation capacity are expected to continue to grow slowly at rates of 56.4 and 50.9 respectively, with price increases expected.
“If these predictions prove to be true, it is likely that the freight recession will end, and transportation will move back into a period of growth,” the report said.
