The Logistics Managers’ Index (LMI) is a measure that combines eight components pertinent to the freight industry, based on a survey given to North American logistics executives. The components are: inventory levels and costs; warehousing capacity, utilization and prices; and transportation capacity, utilization and prices. Similar to the Purchasing Manager’s Index, the LMI is a diffusion Index, wherein a reading above 50 indicates expansion and a reading below 50 indicates contraction. The LMI is a collaboration between 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 (CSCMP).
August data for the LMI (LMI.TOTL) shows a reading of 56.6, down 0.32 from July; August marks the second lowest level since inception. The general downward movement coincides with the declines in the Outbound Tender Reject Index (OTRI.USA).
The glut of driver capacity means that fewer loads are being rejected, pushing OTRI.USA down to a reading of 4.66%. The additional capacity is also translating into a decline in transportation prices (LMI.TPPR), which have contracted in three of the last four months. The transportation pricing component of the LMI is down to 48.9 after registering a 92.7 one year ago — a 43.8-point drop.
According to Zac Rogers, a Ph.D. of Colorado State, “The change index used by the LMI ranges from 0-100, so to go from growing at close to the fastest rate possible to contracting in 12 months suggests a significant price shift in the market.”
Additionally, Rogers sees the drop in inventory levels as a significant movement in August. “The LMI Inventory level component is down 7.6 points and could be related to all the extra capacity. It hasn’t been this low since January, after Christmas when inventory is typically emptied. The demand for inventory is slowing down quite a bit.” Though the rate of growth is slowing, there is still growth overall.
The high capacity is evidenced by the for-hire tractor count (TCFH.USA), which shows that the trucking industry added 26,500 more trucks available for dispatch since November 2018. More can be read about that in FreightWaves article regarding driver shortages.
The drops in both the LMI and OTRI.USA preceded much of the decline seen in overall manufacturing. This drives home the point that the industry has drastically changed over the last 12 months, with the LMI illustrating the softening in the transportation and warehousing market.