Supply Chain Matters provides highlights and added perspectives on the release of the U.S. Logistics Managers Index (LMI) that again dropped to an all-time low for June 2023.

Another All-Time Low Milestone

The Logistics Managers Index Report®, compiled by researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP), reached another all-time low milestone for the fourth consecutive month.

The June value of 45.6 declined 1.7 percentage points from the May value of 47.3, and a significant 5.3 percentage points compared to the April value of 50.9. Further, the current LMI value has slid 21.5 percentage points on a year-over-year dimension.

According to the June report summary, the primary driver of the latest decline was the inventory metric, which reportedly contracted 6.5 percentage points, noted as the second fastest rate of decline in this index’s history. Consequently, the warehousing capacity metric increased a reported 6.8 percentage points in June. Both metrics contributed to the overall contraction in the LMI along with contracting price levels for transportation. Similar trends were highlighted in our Supply Chain Matters summary of the May 2023 LMI report.

Transportation utilization reportedly dipped a hefty 9.5 percentage points In May, noted as an indication that shippers are consuming even less of available capacity than the month earlier. Consequently, transportation prices reportedly declined 8.9 percentage points to an all-time low value of 27.9, not only described as a “significant rate of contraction,” but also the first time that this particular metric has reached such a low level.

The narrative contrasts historical inventory-to-sales ratios and provides an assessment that “it appears that firms are getting back to the inventory to sales ratios that they saw pre-pandemic- something they have been striving to do through 2021 and 2022.

A further takeaway message in the June summary states the following:

There is still a mismatch between capacity and demand, but if- as the chart suggests- demand is beginning to stabilize, then supply chains should have an easier time right-sizing their logistics capacity going forward.



The June report’s narratives and implications can be viewed from two increasingly different frames of reference, one being the logistics and warehousing services industry, the other being manufacturers, retailers, wholesalers and businesses that are anchored in supply chain cost sensitivities. For these reasons, Supply Chain Matters will provide a context for both of these dimensions.

From our lens, the implications are twofold.

For logistics and transportation services interests, any notion of benefiting from the seasonal surge in material movements supporting the upcoming Q3 and Q4 selling period in terms of pricing leverage is not likely to occur in the coming weeks. In blunt words, a seller’s logistics and transportation services market existing of exploding demand seeking finite capacity is now passed. Further, the added evidence of increased warehouse capacity levels will have an effect on previously rather high levels of warehouse contracting and leasing rates. As the report authors indicated, warehousing rates have been anchored mostly in longer-term contracts, especially for larger firms seeking such capacity. Surge or seasonal capacity is usually pegged to spot rates based on available capacity.

This week, global real estate services firm Cushman & Wakefield released its Q2-2023 industrial real estate report which was headlined with industrial vacancy rates increasing by 60 basis points to 4.1 percent. Specifically noted in this report was the following:

Fueling the rise in vacancy has been the strong completion totals of speculative developments across the marketplace coupled with the right sizing of occupiers due to tempered consumer demand and elevated inventory levels.”

Jason Price, Senior Research Director, U.S. Industrial and Logistics further indicated that with tempered consumer demand “we see generally softening market conditions.” Further noted was that this was the first time since the middle of 2021 that the vacancy rate exceeded four percent.

We interpret the above to be a general leading indicator of an expected increase in warehouse capacity levels and a consequent market-driven reduction in industrial space rates in the coming months. There are pf course, some regionally based exceptions but the trend appears to now be moving downward.

For manufacturers, retailers and businesses, there should be a collective sigh of relief that finally, efforts to work off or adjust inventory levels to post-pandemic product demand levels are showing progress. That stated, with the exception of a few major retailers, this process took too long. Further, multi-industry logistics teams demonstrated the savviness and where-with-all to aggressively negotiate with transportation and logistics services providers to reduce longer term contract rates or leverage more attractive spot rates to their cost advantages.


Supply Chain Matters Takeaways

For the logistics and transportation sector, the latest June 2023 LMI data reinforces that a contractionary or freight recession period remains and can likely extend itself based on whether the U.S. economy moves toward recession in the second half. Thus, some rather difficult decisions remain regarding areas of capacity, resources and perceived market opportunities. The most important focus will be on increased efficiencies, overall throughput and further reduced costs from pandemic levels.

For manufacturers, retailers and other businesses with a keen eye toward reducing the prior and unprecedented explosive costs of transportation and logistics costs, the takeaway is one of positive trending. The prior sins of inventory excesses or bullwhip effects are now being addressed and as noted, the right sizing of inventory to anticipated product demand levels is now underway. This trend is evident in the latest June 2023 global wide PMI reports with inventory and supplier lead times generally shrinking.

The most important takeaway is the specific learning acquired by both groups during the last three plus years and the initiating of specific actions and investments to avoid what has occurred.


Bob Ferrari

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