After an April lull, the transportation industry is coming back to life, according to a new metric released on Tuesday. The Logistics Manager’s Index grew by more than seven points in June, reaching 61.7, its highest rate since February of 2019.
The LMI measures growth across inventory levels and costs, warehouse utilization, prices, and capacity, and transportation utilization, prices, and capacity. In June, inventory levels, warehousing utilization, warehousing prices, transportation utilization, and transportation prices all improved, according to this measure. Inventory costs, warehouse capacity, and transportation capacity all contracted.
It hasn’t exactly been a secret that Covid has thrown a monkey wrench in inventory. In April (the most recent data available), the inventory-to-sales ratio skyrocketed to 1.67, according to the Census Bureau (its previous peak was 1.48 in January of 2009). For those who aren’t familiar, the inventory sales ratio is calculated by looking at inventory values divided by sales values. A higher inventory sales ratio indicates that companies aren’t able to move their wares, either because of mistakes that retailers have made, or because economic conditions are not conducive to buying. In this case, Covid has been keeping customers home, and retail inventory is taking up space on shelves. According to LMI survey data, inventory levels rose by nearly eight points from May to June, and respondents expect it to increase further over the next year.
Which brings us to warehouse space. If sales decline unexpectedly in relation to orders, all that inventory is going to need somewhere to go. Warehouse capacity has shrunk accordingly, reaching 41.7, its lowest in LMI history. Correspondingly, warehouse utilization rose 7.5 points to 65.5, from May to June.
Inventory and warehouse space have been on an upward trend, but the comeback in transportation costs is what really spiked growth. Utilization and prices both rose by double digits last month, according to LMI data. In particular, transportation prices gained 15.4 points, jumping from contraction territory in May (49.1) to expansion in June (64.5). The transportation capacity index fell by 8.3 points to 49.6 in June. This likely reflects downsizing or shuttering of some fleets.
The LMI was 51.3 in April and 54.5 in May. The June increase is no doubt due to the economy reopening. Any growth we see going forward will, of course, depend on the direction that the coronavirus takes.