LEGACY Insights: Logistics Managers’ Index Registers Historical Levels Indicating Rapid Expansion

Logistics Managers’ Index (LMI)

Released on August 2, the July 2021 Logistics Managers’ Index (LMI) came in at 74.5, tying for the third-highest in the history of the index.

This marks the sixth consecutive month the index has been above the 70-point mark – indicating significant increased logistics demand relative to capacity.

The LMI - which is published by the Council of Supply Chain Management Professionals (CSCMP) in collaboration with researchers at multiple accredited universities - is a diffusion index based on eight components that pertain to the logistics industry.

These 8 components look at Inventory levels & costs, Warehouse capacity, utilization & price, and Transportation capacity, utilization & price. A score above 50 indicates that logistics is expanding, whereas a reading below 50 indicates that logistics is contracting.

July’s high score is the product of a few factors. The Warehousing Prices index continues to sit at an all-time high of 88.0, with a lack of available capacity due to low inventory rates and rising inventory levels contributing to high prices.

These factors have also led to an increase in the Warehouse Utilization index, which currently sits at 70.5. Inventory Cost metrics have decreased slightly from June’s 89.4 reading, but remain strong at 88.8, indicating high costs which will likely have downstream effects on end consumers.

This excess inventory has strained Transportation Networks, which sit at 39.4, and conversely increased Transportation Prices, which read 91.0 - up 3.8 points from June.

While July’s Index is telling on its own, we like to use the LMI’s 3-month rolling average as a key indicator of macro-level changes happening in the supply chain. Using the current rolling 3-month rolling average, we can make some educated forecasts on what we expect in our industry.

Key Logistics Managers’ Index Insights

• Transportation prices appear to be increasing at a slower rate – signaling a potential flattening, especially on the international front. However, worsening US port challenges largely driven by labor issues and massive freight volumes continue to be a bottleneck impacting inbound freight flows. These port challenges have also had downstream effects on interior rail and truck services where capacity and price do remain volatile. Sporadic Covid-related shutdowns across Asia contribute further to the situation and are beginning to impact production schedules.
• Warehouse prices are going up while Warehouse capacity is in flux – as capacity is very tight at most North American ports of entry, while some interior warehouses see capacity growing. No doubt this is due to heavy outbound sales volume and slower inbound replenishment due to worsening congestion. There is a (more than) full pipeline of freight moving inbound, and we expect congestion to worsen through the end of the year.
• Macro-Level Flattening with High Micro-Level Volatility – Does this signal a “New Normal”? The LMI and other factors are telling us we may be seeing the transportation market generally flattening out with respect to price, even as we move into peak season. While we all continue to experience instability in the short term, time will tell if this flattening indicates the establishment of a new pricing floor in the long term, or if the market will recorrect back to pre-2019 levels. A key factor in this long term will be whether large-scale structural improvements to US logistics infrastructure will become a reality, as current infrastructure is proving incapable of handling the demands placed on it.

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