February’s Logistics Managers’ Index (LMI), which measures directional changes in transportation and warehousing activity, showed inventories rising at the fastest pace since the index’s inception in 2016 with a monthly value of 80.16. With companies finally making significant progress in restocking, orders could start to slow, which could allow supply chains to stabilize.
Businesses have struggled to replenish depleted inventory levels over the past 18 months, largely thanks to unprecedented increases in demand and production disruptions resulting from the pandemic. Inventory-to-sales ratios have averaged about 12% lower than pre-pandemic levels over the past year, with no signs of improvement, according to the Census Bureau.
After about a month of home confinement in April 2020, consumers got busy ordering items online and renovating their homes. This activity was completely unexpected as many companies stopped ordering goods due to the uncertainty of what would happen next. The result was a rapid depletion of existing inventory that pushed full truckload tender volumes to record highs.
The Outbound Tender Volume Index (OTVI), which measures the total number of full truckload tenders from shippers requesting capacity, rose 70% from May to September as inventory levels having fallen.
As inventories begin to recover at a much faster pace in January and February, trucking demand appears to be showing early signs of decline in March, with the OTVI falling 7.5% in the first three weeks of March. , hitting its lowest non-holiday point since February. 2021.
This week Freightonomics episodeZac Rogers, one of the main contributors to the LMI at Colorado State University, explained how much large retailers like Amazon and Walmart are holding inventory upstream of the supply chain as demand has fallen slightly from peak levels. .
It’s no secret that inflation is seen as the main culprit in eroding demand, with the CPI up nearly 8% over the past year, gasoline (+38% ) and food being the main contributors. Consumer credit card debt also rebounded as savings rates fell, indicating consumers may not have the discretionary income for possessions they had in 2021.
Rogers says some erosion on the demand side is probably a good thing because the current level of chaos is unsustainable and unhealthy in the long run. The Fed raised interest rates by a quarter point this week because it also knows that to be true. The main concern is the “whiplash effect” on the economy, as prices inflate too quickly, leading to a sudden drop in demand, potentially creating a recession.
There are no signs of a recession at this point as there is still plenty of growth resulting from a lagging industrial sector, a white-hot construction environment and consumers still spending way beyond that. pre-pandemic levels for retail goods. Services have also made a comeback.
Rogers used the analogy that a 65 degree day in June feels much cooler than a 65 degree day in February, essentially stating that any cooling from an overheated environment feels substantial even if it is still overheated.
The logistics environment remains unstable regardless of stock levels. According to ProLogis, the warehouse vacancy rate is at or near an all-time low, while imports continue to flow into the country. These goods have to go somewhere and inventory and supply chain managers still have a long way to go before they can relax.
About the chart of the week
The FreightWaves chart of the week is a selection of charts from SONAR that provide an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week, a market expert will post a chart, along with commentary, live on the front page. After that, the chart for the week will be archived on FreightWaves.com for future reference.
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