Thursday, June 13, 2024

Transportation prices fall at fastest-ever pace in December, LMI says

Supply chain data released Tuesday showed a new “sharpest rate of contraction” for transportation pricing during December.

The Logistics Managers’ Index (LMI), a monthly survey of supply chain executives, displayed a 36.9 reading for transportation prices during the month. The rate of decline was the fastest recorded in the six-year history of the data set.

A reading above 50 indicates expansion while one below that indicates contraction.

Transportation utilization (48.1) fell into contraction territory for the first time since April 2020, while transportation capacity (69.5) expanded at a historically high but more tepid pace.

“With warehouses largely full of product before the start of the holiday season, less transportation than usual was needed to push goods forward at the last minute,” the report said.

The loosening in trucking markets has been evident in FreightWaves’ tender rejection data. The Outbound Tender Reject Index remained in the sub-5% range for the bulk of the fourth quarter. By comparison, carriers were rejecting roughly one out of every four loads in the same period of 2021.

“With carriers able to cover the majority of volume through previously contracted capacity, spot market prices continue to stay low,” the report continued.

Chart: (SONAR: OTRI.USA) A proxy for truck capacity, the Outbound Tender Reject Index, shows the number of loads being rejected by carriers. To learn more about FreightWaves SONAR, click here.

“Waning demand” and to a lesser degree lower diesel prices were cited as reasons transportation rates continued to fall. The most recent weekly update shows diesel prices were down $1.27 per gallon from the June high. However, the per-gallon cost was still 30% higher year over year (y/y) on average during December.

The rate of contraction in transportation prices slowed as December progressed. In the first half of the month, the pricing index registered a 27.4 reading versus a level of 43.1 during the last two weeks. Oddly, transportation utilization was 13.1 percentage points lower at 43 in the back half of the month.

“The dip in utilization was likely due to upstream firms [at the wholesale level] having nothing to ship while downstream firms continued to utilize more expensive last-mile delivery services,” the report concluded.

Aggregated supply chain costs — inventory, warehousing and transportation — remained more than 30 points into expansion territory at 181.7 during the month. However, this was the lowest rate of growth logged by the LMI in more than two years and nearly 90 points lower than the all-time high established in March. 

“Much of the recent slowdown in inflation can be traced back to the reduction in logistics costs,” the report continued. “While the Federal Reserve may get the lion’s share of the headlines for battling inflation, it could very reasonably be argued that it is in fact the efforts of supply chain professionals who have led the charge to tamp down inflation through the last nine months of 2022.”

Chart: (SONAR: NTIL.USA). The National Truckload Index (linehaul only – NTIL) is based on an average of booked spot dry van loads from 250,000 lanes and 10,000 daily spot market transactions. The NTIL is a seven-day moving average of linehaul spot rates excluding fuel. Spot rates bounced from cycle lows in the back half of December.

The overall LMI stood at 54.6 in December, one point higher than the November level and only the second sequential improvement since March.

Inventory levels (57.3) grew at a sub-60 threshold for the second straight month and for only the second time in 2022. The accumulation of merchandise continued at a faster pace for “downstream respondents,” or supply chain participants closer to the consumer.

“Essentially, downstream respondents such as retailers held higher levels of inventory and dealt with more limited warehousing as they pushed to get goods to consumers for holiday shopping,” the report said.

The Inventory costs subindex (72.8) showed “a significant rate of growth” but the lowest on record in two years.

Warehousing capacity (44.7) remained in contraction for the 29th straight month, with utilization (64.1) jumping 7.3 points from November. The combination kept warehousing prices (72.1) elevated but 10 points lower y/y.

“Prices will remain high until adequate capacity comes online — specifically in areas near ports and near consumers where it has been desperately needed,” the report said. It also noted a lag effect from long-term contracts, which will keep the subindex elevated even as new warehouses come online.

Future predictions from respondents peg the overall LMI at 53.2 in 2023 with the transportation prices subindex at 47.7, a 5.6-point increase from November expectations.

The LMI is a collaboration among Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals.

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