Global logistics comebacks after 5 months shrink


According to data from Logistics Managers' Index, the logistics industry saw growth return in September after five months of consecutive declines, starting from April.

Economic activity in the logistics industry picked up again in September. According to Supply Chain Quarterly, the logistics sector has returned to growth at a moderate pace compared to April, based on the latest report of the Logistics Managers' Index (LMI), published on October 4.

The growth rate of the logistics industry has slowed down in the past 6 months. Previously, the industry had seen record high growth lasting about a year and a half, driven by demand for logistics services in the COVID-19 pandemic.

LMI in September came in at 61.4 points, up 1.7 points from August, but relatively lower than the all-time high of 76.2 milestone in March. LMI scores above 50 points which indicate the expansion of the whole industry, and if the index is below 50 points, it shows that the logistics industry is shrinking. According to LMI researchers, an index above 70 points indicates significant growth in the sector.

The LMI report is based on a monthly survey of logistics professionals in North America. According to experts, the growth of this sector is slowing down, but the growth of the industry is being driven by high inventories and the associated costs of holding and managing inventory.

An inventory-related index rose more than four points in September to 71.9, continuing a trend that has persisted throughout 2022, indicating a growing inventory. This stems from supply chain disruptions, resulting in more goods arriving at warehouses later than expected.

Two other factors that also affect the increase of inventories are the change in consumer spending habits after the COVID-19 pandemic and pressure from high inflation. Excessive inventory and lacking of warehouse space are driving costs, as LMI's inventory cost index remains high, around 77.2 points in September.

“Inventories are everywhere. The network of warehouses is transparent, which means that inventory costs are rising. The current situation is driving up prices and demand for warehousing,” said researcher Zac Rogers, assistant professor of supply chain management at Colorado State University.

In September, the warehouse rent index increased slightly to 75.4 points and the warehouse utilization index reached 76.8 points, an increase of more than 11 points compared to August and the second highest in the tracking history of the company. Mr. Rogers says these numbers reflect companies' desire to stay ahead of demand, especially as the peak holiday shipping season gets underway.

Warehousing and storage indexes, in contrast to shipping measures, continued to ease in September. The freight capacity index reached a record high and the transport price index continued its downward trend since May 3rd, which hit a two-year low point. At the same time, the transport usage index rose in September, meaning companies are using available resources. According to Mr. Rogers, this seems to reflect the company's efforts to cut costs by combining transportation as much as possible.

“Everybody is trying to cut costs. Businesses have also learned lessons during the COVID-19 pandemic. The tightening in the supply chain over the past few years has made them realize many things. Now, they want to optimize their operations to increase efficiency in logistics work,” said Mr. Rogers.

Going forward, survey respondents predict that the growth rate of the global logistics industry will continue to increase at a moderate rate. Specifically, respondents expect the overall industry growth rate over the next 12 months to stay above the 50-point mark according to the LMI. Mr. Rogers said that it should’ve been expected after the rapid expansion of the logistics industry over the past two years.

“The logistics industry has grown as if 'driving 200 miles per hour on the highway'. Such things cannot become sustainable. The industry as a whole has to slow down and get back to normal, and that's exactly what we're seeing.”

LMI tracks the overall growth of the logistics industry on a variety of factors, including inventory levels, costs, usability, warehouse pricing, shipping capacity, and more.

The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals. (CSCMP).


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