“Because capacity is low and costs are high, it is difficult to move inventory efficiently,” said the Logistics Managers’ Index in regards to its latest survey measuring activity within the nation’s supply chain. “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.”
LMI’s supply chain data shows 12 months in a row with a reading of more than 70–a level of “significant expansion” which depicts inventory throughout the United States supply chain continuing to accumulate without sufficient transportation available to quickly turn it.
Logistics Managers’ Index reports are released regularly by the Council of Supply Chain Management Professionals in collaboration with researchers and experts at Rutgers University, the University of Nevada at Reno, Arizona State University, the Rochester Institute of Technology, and Colorado State University.
“Researchers from leading logistics and supply chain schools are conducting a long-term survey with the goal of identifying trends and developments in the logistics industry over time,” LMI explains on its website. “This data will be used to generate knowledge and content relevant to the logistics industry. Logistics metrics such as transportation, warehousing, and inventory are leading economic indicators, and can point towards potential movements in the overall economy.”
Survey responses allow LMI researchers to continuously analyze the trending movement of these metrics.
“In our monthly survey, we gather the responses of over 100 professionals on the movement and direction of key logistics metrics,” the site continues. “These metrics are aggregated into the Logistics Managers’ Index, which is released on the first Tuesday of every month.”
Specifically, the index rose to 71.9 in January–an increase of 1.8 percentage points. Any reading higher than 50% indicates significant expansion, and a reading under 50% shows contraction. Additionally, the inventory levels’ subindex rose by 9.5 points in January to reach 71.1, which marks the highest recorded growth rate shown since the beginning of 2018. This set of data itself has risen a total 12.3 points throughout December and January.
On top of this, January also saw the inventory costs index rise to 87.9–an increase of 3.9 points.
“Excess inventory in the system is eating up more capacity and causing costs to increase further,” LMI continued. “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.”
Costs are reaching record-breaking highs at this point, according to LMI’s warehousing metrics, with space for these goods dwindling rapidly. Capacity within warehouses has continued to stay in a state of contraction with a reading of 47.1, although capacity itself has risen by 0.6 points overall. These capacity numbers have been worsening consistently for the past year-and-a-half.
“The limited availability is encouraging retailers to acquire upstream distribution centers to ensure they have somewhere to store their goods,” LMI’s report noted as warehousing prices data show an increase of 3.8 points, reaching 85.9, and warehouse usage rising 3.7 points to 71. “Until more capacity is available, the growing appetite for e-commerce will keep costs high.”
For nearly a year now, warehouse pricing indices and inventory cost indices have been showing readings reaching 80 or higher–a staggering trend, LMI added.
Additionally, transportation utilization data showed an increase which reached 62.4, with transportation prices reaching 88.7–an increase of 1.1 points. The transportation usage growth rate declined by 4.7 points between December, and transportation prices stayed above a reading of 80 for the 18th month in a row. In January, the transportation capacity subindex rose by 2.1 points to reach 44.8, showing a consistent decline in capacity speed for the third month in a row. For 20 straight months, this particular subindex has been considered to be in a state of contraction.
“Generally, inventory costs are low in January and then increase throughout the rest of the year,” the report explained. “It will be interesting to see if this pattern continues in 2022.”