Logistics in May: Prices see upward swing while warehousing efforts increase

FORT COLLINS, Colo. – The logistics sector strengthened in May, rising from April and now expanding in nine of the past 10 months, according to the Logistics Manager’s Index.

Here are some takeaways:

  • Transportation prices increased 13 points from April, when prices contracted. This marked the biggest increase since June 2022. Capacity, on the other hand, fell four points from April but still is in growth territory.
  • Inventory levels fell overall from mild growth in April back to contraction. When splitting up retailers and suppliers, however, it changed, with levels showing an increase for retailers while contracting for suppliers.
  • Aligning with inventory levels, at least for retailers, is warehouse utilization, which was up a significant nine points.

“Downstream retailers were the other factor behind this expansion, outpacing their upstream counterparts at a rate of 69.5 to 61.6 (with any number above 50 showing growth),” the report said. “The largest downstream user of last-mile logistics services, Amazon, is displaying confidence in the e-commerce market as it moves back into expansion with its distribution network. It has already moved on 16 million square feet of space in the U.S. as it adds both large upstream and smaller downstream warehouses to its portfolio in a bid to increase service levels while also holding costs down.

“This expansion is partly to compete with Walmart, whose network of stores that are located close to consumers allowed it to ship 4.4 billion items as same- or next-day deliveries in the past 12 months.

“This increased utilization has led to subsequent expansion in warehousing prices which are up (+1.2) to 64.9,” the report continued. “The expansion in price in utilization appears to be more a function of increased demand than of restricted supply (which had been the case in much of 2022) since warehousing capacity continues to exhibit mild expansion. Capacity was up (+1.5) to 55.6 in May.

Report authors attempt to explain why warehousing increased in strength while inventory levels dropped.

“Much of this contraction happened in the second half of May, as inventory levels dropped from 52.9 in the first half of the month to 40 in the second half. This is likely a combination of upstream (supplier) expansionary plans being blunted by interest rates and/or the recently announced tariffs on certain goods, and downstream retailers hewing to a strict just-in-time inventory policy to keep costs low.”

Overall, index authors gave a positive outlook, though they believe it’s unclear when a full recovery will come.

“Essentially, transportation markets are improving, but are still not all the way back because there continue to be both bright and dark spots in the market. Rates of utilization varied significantly across the supply chain this month. For instance, larger respondents reported expansion that was 9.7 points greater than smaller firms (64.2 to 54.5). This difference was even more pronounced when looking at the upstream/downstream split. Despite the contraction in inventory levels, upstream firms reported mild rates of expansion at 55.1. Their downstream counterparts however came in 14.2-points higher, reporting expansion at 69.4 which would be the highest reading in this metric since the boom-times of Nov. 2021.

“Taken all together, this suggests that markets are recovering downstream, but a full recovery is being held back by trepidation upstream. Whether the reasons for that are interest rates, tariffs, too much capacity, or (most likely) a combination of all three is not clear. What is clear though, is that the freight market cannot recover unless the recovery is more evenly distributed across the supply chain.”

See the full report here.

See also:

  • Transportation prices rise for the first time in 19 months: Is demand improving?
  • Logistics execs target new countries amid supply chain overhauls

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