No Movement in Oct. Logistics Managers’ Index

The October Logistics Manager’s Index, released last week, came in at 57.4, which indicated there was no movement from September’s reading.

The authors of the report noted that the lack of movement in the overall index is the result of cross-pressures from downward movements in inventories and warehousing metrics, counteracted by upward pressures in transportation metrics.

Inventories, which peaked in mid-October, are moving towards consumers in anticipation of the holiday season. However, the general peak in October was different this year, as inventories were moved earlier to avoid tariffs. The authors said there is evidence that things are moving toward normalcy. 

Costs

Costs continue to grow at a rate of 73.2, indicating a significant price expansion, the report notes. The expansion is consistent in both Upstream (75.0) and Downstream (70.0), as well as for smaller (73.4) and larger (72.5) firms.

The authors offer the following explanation:

The continued increase in costs speaks to the concern that consumer Q4 spending may be held back by high prices. With the consumer price index (CPI) continuing to hover around 3%, it is expected that some retailer increases in earnings may be due more to an increase in the price, but not necessarily an increase in the volume, of the goods they sell during Q4[14].

This means that retail sales may be more disentangled from shipping volumes than normal, meaning that even if sales are up over the holidays (as seems likely) it may not necessarily mean we see a significant boost in the freight market. 

Warehouse Utilization

Inventory movement has resulted in warehouse utilization expansion slowing to 56.5. This was driven, almost totally, by smaller firms later in the month. 

Early October saw warehousing utilization contract slightly at 48.4, whereas the second half of the month saw expansion at 60.3. Large firms contracted in warehousing utilization at 48.0, contrasting with expansion of 60.3 reported by their smaller counterparts.

The two groups also saw a statistically significant difference in warehousing prices, with smaller firms reporting expansion at 71.7 and larger firms reporting slower – but still significant – expansion at 63.3. 
 
Warehousing capacity ticked up slightly (+0.5) to 52.0 in October, which represents a very small increase in available space. The higher costs and utilization experienced by smaller respondents are explained by their report of slight contraction of available Warehousing capacity at 47.9, which stands in contrast to the expansion of 55.0 reported by larger firms.

The combination of slightly looser capacity with increasing prices is aligned with recent reporting that vacant warehousing space in the U.S. remained at an 11-year high at the end of the third quarter.

Available space did not expand in this quarter – the first time this has happened in three years, as construction of industrial storage space has slowed. Demand cooled in the third quarter as inventories stabilized, but demand remained soft across many sectors. With this 7.1% vacancy, the average rent price moved to $10.10 per square foot, which is up 1.7% year-over-year.

More details can be found in the report.