Chart of the Week: Logistics Managers’ Index – Transportation Capacity, Transportation Prices SONAR: LMI.TPCP, LMI.TPPR
When the Logistics Managers’ Index (LMI) transportation capacity component falls below the transportation price figure, capacity is relatively tight. When the inverse is true, capacity is generally loose. The past few months are trending toward another flip that may suggest equilibrium of supply and demand is closer than we thought in the transportation market.
The LMI has proven to be very accurate in describing domestic transportation market conditions over the past several years. In the generally soft 2019 market, the price index was below the capacity index. In June 2020, the two components flipped and remained in strong opposition until March 2022.
The LMI is a diffusion index based on surveys of more than 300 supply chain professionals measuring various components of the transportation and logistics space. Values above 50 indicate expansion, while sub-50 readings are indicative of contraction.
The most recent October reading for prices was 44.4, indicating that prices were contracting but at a much slower pace than the 28 that was printed in April. The October capacity value was 56.7, which was down significantly from the 71 that occurred in May.
As you can tell, over the past five years, there has been little balance in the transportation markets, moving violently from very tight to very loose. COVID can be blamed for most of this. The 2017-18 market was also very tight but was considered a “black swan” type of environment at the time.
The reality is that the economic stability (or stagnation depending on your perspective) of the post-2009 recession may have been the real anomaly. Economically speaking, there are more questions than answers and that will keep companies on edge and more prone to erratic behavior — especially in shipping.
In this past week’s Freightonomics, Zac Rogers, assistant professor of supply chain management at Colorado State University and contributor to the LMI, talked about how shippers have reverted to more of a just-in-time pattern of shipping as demand remains uncertain and warehousing costs have increased.
He also cited how Yellow’s exit has seemingly helped accelerate the perception of a decline in available capacity and propped prices at higher levels. One thing that isn’t clear is to what scale this is occurring.
Tender rejection rates, which measure the rate carriers reject or turn down requests for truckload capacity from their customers, bottomed in May as well and have been trending higher since then — suggesting the correlation between Yellow’s exit could be spurious to some extent.
Regardless of the reasoning, there are multiple data sources painting the same picture. Capacity is tightening, though still not enough to generate disruption — yet. The larger question remains around just when will freight market participants feel some noticeable and more consistent service disruptions.
Caveats are always a thing
Possibly the most uncertain aspect of predicting a freight market turn is the underlying economics. The advance release of the Q3 GDP produced one of the most disconnected values in recent history in terms of economic perception.
The 4.9% quarterly growth figure seemed somewhat unbelievable in the context that it would normally be considered a value that is indicative of an economic boom. But the Federal Reserve economists seemingly dismissed the figure and consumer confidence declined.
The consumer spending that fed the figure has become increasingly leveraged with credit card debt and the labor market is showing signs of weakening as people are having increasing difficulties finding employment as continued claims have hit their highest values since late 2021.
In the near-term future, the gap between the two LMI figures may reverse course over the winter if traditional seasonality returns. January and February tend to be the slowest months of the year for shipping. This would push demand down, widening the gap between the capacity ceiling temporarily.
The gap between the LMI capacity and price figures has shrunk from 41 to 12 over a five-month period. The sheer momentum suggests we may be closer to a market flip than we think, but the longest yard is always the last one.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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Mark M Lewis
Here is my opinion..too many old timer issues..and naysayers is still on the road, we all have to move with the time and do like we do when we out on the road and adapt to our environment like a one man army.we all was making a lot of money but some of us did not save anything for a rainy day..be a doers not a complainer..we control the world..think about this,,the insurance company only makes money on the small business they need us to stay in business and the big company doesn’t have enough trucks and driver to move the loads brokers cannot move load with their fingers..politicians mouth cannot move the loads so let’s come up with a way for them to work with us,or get out the way,and stop wasting time talking about how the world going to end
Joe schneider
Your full of it this freight market is not close to being even you won’t no crap until you own and operate a truck and are the driver running it,, anything under 2.30 a mile is not making a living , it runs your equipment in the ground and leaves you with nothing except the truck getting paid enough to to pay for the truck and with brokers pocketing over 2k a load when they have a computer and dsl line to pay for and brokerage license to pay for they are robbing the trucker, the mc, the shipper and consignee and if it keeps up you break trucking which is the back bone to this country, and global economy we as a country will fall and become a third world country overnight. So quit filling everyone with your propaganda BS, and wake up. The freightmarket and transportation industry was not this bad in 2006 or 2007, as it is now, and you wonder why people are not getting CDLs, it’s cause us people that have them are telling people that are thinking about getting them don’t waste your time or money. It’s not worth it.
Rick farkas
Let’s just strike nationwide it’ll change everything in ten seconds
Dmitriy B
FMCSA need to regulate the Brokers.
This is where the problem is.
Mandatory SHOW charge from shipper to broker on Every Every Rate confirmation.
Mandatory nationwide min $2per mile.
Mandate not more then MAX charge of 20% to the broker from Shipper ( show on RC ).
Mandatory $100hr up 3hrs duration.
Mandatory $500 a day/night layover.
Mandate $300 no truck use.
If all this happens you will see a big change.
William S Keyser
Yeah because so many smaller companies have gone out of business this year after not being able to make enough money to stay in business! And there’s more to come! But this is what they wanted, small businesses out!
Donald Burrow
Here is my prediction based on 30 plus yrs as a Independent Owner Operator, nothing is going to get back to normal until Joe Biden and his swamp rats are gone. Then we turn it around
John Paul Jones
Great article describing the Logistics Managers Index (LMI). I can now with confidence share with others how best to measure conditions in the Industry. Thanks
sinarking
SULTAN of SONAR? LOLOLOL how about you drive a truck with your own money for a few months SONAR king