According to supply chain data released on Tuesday, 3 January, transportation pricing experienced a new “sharpest rate of contraction” in December.
During the month, the Logistics Managers’ Index (LMI), a monthly survey of supply chain executives, showed a 36.9 reading for transportation prices. The decline rate reached the fastest level recorded in the data set’s six-year history.
A reading greater than 50 indicates expansion, while one less than 50 indicates contraction.
Transportation Utilization and Capacity Trends
For the first time since April 2020, transportation utilization (48.1) fell into contraction territory, while transportation capacity (69.5) expanded at a historically high but more tepid pace.
The report notes that warehouses were largely full of product before the start of the holiday season, so companies required less transportation than usual to move goods at the last minute.
Tender rejection data from FreightWaves show that trucking markets are loosening. For most of the fourth quarter, the Outbound Tender Reject Index remained in the sub-5% range. In comparison, carriers rejected approximately one out of every four loads in the same period in 2021.
“With carriers able to cover the majority of volume through previously contracted capacity, spot market prices remain low,” according to the report.
Transportation rates have continued to fall due to “waning demand” and, to a lesser extent, lower diesel prices. According to the most recent weekly update, diesel prices are down $1.27 per gallon from their peak in June. However, the average per-gallon price in December was 30% higher year over year (y/y).
As December progressed, the rate of decline in transportation prices slowed. The pricing index registered a reading of 27.4 in the first half of the month, compared to 43.1 in the previous two weeks. Surprisingly, transportation utilization was 13.1 percentage points lower in the second half of the month, at 43.
Impact of Upstream and Downstream Firms
The report concluded that upstream firms [at the wholesale level] likely had nothing to ship, while downstream firms continued to use more expensive last-mile delivery services, causing the decrease in utilization.
During the month, aggregate supply chain costs — inventory, warehousing, and transportation — remained more than 30 points in expansion territory, at 181.7. However, this was the LMI’s slowest growth rate over two years, nearly 90 points lower than the all-time high set in March.
The report continued, “Lower logistics costs have contributed to much of the recent slowdown in inflation. While the Federal Reserve may receive the lion’s share of the headlines for battling inflation, supply chain professionals have led the charge to reduce inflation over the last nine months of 2022.”
In December, the overall LMI was 54.6, one point higher than in November and only the second consecutive improvement since March.
Inventory Levels and Trends
Inventory levels (57.3) increased below the 60-point mark for the second consecutive month and only the second time in 2022. “Downstream respondents,” or supply chain participants closer to the consumer, continued accumulating merchandise faster.
“Essentially, downstream respondents, such as retailers, held higher levels of inventory and dealt with more limited warehousing as they pushed to get goods to consumers in time for holiday shopping,” according to the report.
The Inventory costs subindex (72.8) showed “significant growth,” but it was the slowest in two years.
Warehousing Capacity and Utilization
Warehousing capacity (44.7) fell for the 29th consecutive month, while utilization (64.1) increased by 7.3 points from November. The combination kept warehousing prices elevated (72.1), but 10 points lower year on year.
“Prices will remain high until adequate capacity is available — particularly in areas near ports and consumers where it is desperately needed,” according to the report. It also noted that long-term contracts have a lag effect, which will keep the subindex elevated even as new warehouses come online.
Respondents predict the overall LMI will be 53.2 in 2023, with the transportation prices subindex at 47.7, a 5.6-point increase from November expectations.
The LMI is a collaboration between Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno. It is being conducted in partnership with the Council of Supply Chain Management Professionals.
