Inventory expansion, more efficient use of warehousing and transportation drive industry growth back to “normal” levels, industry research shows.
Economic activity in the logistics industry grew for the fourth straight month in March and marked a continued return to more “healthy and normal” growth levels, according to the latest Logistics Managers’ Index (LMI) report, released this week.
The March LMI registered 58.3, up nearly 2 points from February and continuing an upward trend since last December. The LMI is a monthly report that measures economic activity across warehousing and transportation markets; a reading above 50 indicates economic expansion and a reading below 50 indicates contraction. The index fell to 49.4 last November, and also dipped into contraction mode last summer, falling below the growth threshold in May, June, and July of 2023.
The early 2024 pattern marks a return to more traditional growth following accelerated expansion in logistics activity during the pandemic and a subsequent freight recession that ushered in volatile conditions for much of 2022 and 2023. In March, the growth was helped by long-planned inventory expansions and better utilization of warehousing and transportation resources, according to LMI researcher Zac Rogers, associate professor of supply chain management at Colorado State University.
“The change this month was primarily driven by a continued rebuilding of inventory levels (+5.3), which at 63.8 are at their highest level since October 2022,” Rogers wrote in the March LMI report. “This growth has had cascading effects on tightening warehousing capacity (-8.2) which is back into contraction territory for the first time since January 2023. These changes suggest that firms are building up inventories in anticipation of continued consumer spending and suggests that the economy will continue to grow in the near-term.”
Separately, Rogers said that most of the activity in warehousing and inventory is concentrated among upstream firms—wholesalers, distributors, and logistics providers that are supporting manufacturing industries.
“Productivity and demand have shifted to manufacturing and manufacturing-adjacent [businesses]. And that’s driven by nearshoring [because companies] need storage for production,” he said.
Rogers pointed to a “bit of a turnaround” in transportation markets during the month but said the industry is not out of the woods just yet, pointing to a capacity buildup during the pandemic, especially in trucking, that still needs to be worked out.
“Transportation capacity is still growing at a faster rate than transportation prices; it is unlikely the freight recession will truly end until demand increases, capacity contracts a little further, or potentially both simultaneously,” Rogers wrote in the report.
The LMI is a monthly survey of logistics managers from across the country. It tracks industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. 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).
Source: https://www.dcvelocity.com/articles/60410-logistics-economy-expanded-in-march
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