A survey measuring supply chain activity, the Logistics Managers’ Index (LMI), logged a 12th straight month with a reading above 70, a level classified as “significant expansion.” An accumulation of inventory throughout the supply chain and not enough transportation capacity to turn it quickly drove the increase.
The LMI increased 1.8 percentage points in January to 71.9. A reading above 50% indicates expansion while a reading below 50% indicates contraction.
The subindex for inventory levels jumped 9.5 points to 71.1 in January, the highest rate of growth recorded since early 2018. The dataset is up 12.3 points over the past two months.
“Because capacity is low and costs are high, it is difficult to move inventory efficiently,” the report read. “This combination of low capacity and high costs likely led to over-ordering this past Fall, and to goods idling at points in the supply chain where they could not be purchased by customers.”
The inventory costs index was up 3.9 points to 87.9 during the month.
“Excess inventory in the system is eating up more capacity and causing costs to increase further. Essentially, low capacity and high costs led to higher levels of inventory, and now higher inventory is leading to even less capacity and higher costs.”
However, some of the increase may be the addition of safety stock or a toggle away from just-in-time inventory strategies to avoid stockouts that have become commonplace during the pandemic. Further, expanding e-commerce fulfillment platforms and more retailers moving to same-day delivery will keep the need for incremental inventory and warehouse space high.
The LMI’s warehousing metrics show space is in short supply and costs are near all-time highs. Warehousing capacity increased 0.6 points but remained in contraction territory at 47.1. The capacity index has been declining steadily since August 2020.
Warehousing utilization increased 3.7 points to 71 while the warehousing prices dataset was up 3.8 points to 85.9.
“The limited availability is encouraging retailers to acquire upstream distribution centers to ensure they have somewhere to store their goods. Until more capacity is available, the growing appetite for ecommerce will keep costs high,” the report added.
Both the inventory costs and warehousing prices indexes have displayed a reading of 80 or higher for 11 straight months. “Generally, inventory costs are low in January and then increase throughout the rest of the year,” the report stated. “It will be interesting to see if this pattern continues in 2022.”
The transportation capacity subindex was 2.1 points higher at 44.8 in January. This was the third straight month the rate at which capacity has been declining slowed. The subindex has been in contraction territory for 20 consecutive months.
Transportation utilization continued to increase at 62.4, but the growth rate was 4.7 points lower than in December. The transportation prices index stood at 88.7 (up 1.1 points) and remained above 80 for the 18th straight month.
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.
Click for more FreightWaves articles by Todd Maiden.
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