May/June Logistics Manager’s Index Report

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FOR RELEASE: July 7, 2017

Contact:   Dale Rogers, Ph.D.
Logistics Manager’s Index Analyst
Professor, Logistics & Supply Chain Management
Department of Supply Chain ManagementArizona State University
Tempe, Arizona
(480) 965-1456E-mail: Dale.Rogers@asu.edu http://www.logisticsindex.org
Twitter: @LogisticsIndex

May/June 2017 Logistics Manager’s Index Report®

LMI® at 65.0%
Inventory Levels, Inventory Costs, Warehousing Utilization, Warehousing Capacity, Warehousing Prices Transportation Capacity, Transportation Utilization and Transportation Prices INCREASING. Rate of Growth for Inventory Costs, Warehousing Capacity, Warehouse Prices and Transportation Prices INCREASING.  Rate of growth for Inventory Levels, Warehouse Utilization, Transportation Capacity and Transportation Utilization, DECREASING.

(Tempe, Arizona) — According to a sample of North American logistics executives, economic activity across the logistics sector expanded, though at a slightly decreased rate in May and June.
The report was issued today by researchers at Arizona State University, Rutgers University, Portland State University, University of Nevada, Reno, and Colorado State University in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
Results Overview
The May/June LMI® registered 65.0 percent, a decrease of 0.5 percentage points from the March/April reading of 65.5. This is the second consecutive reading of the LMI in which the rate of growth of the logistics industry has been down by 0.5 percentage points from the previous survey. All readings of price and cost are up significantly in this reading, while Warehouse Utilization and Transportation Capacity are both growing at a significantly decreased rate. The LMI score is a combination of all of the other components that make up the index including inventory levels and costs, warehousing capacity, utilization, and prices, and transportation capacity, utilization, and prices. The LMI is calculated using a diffusion index, in which any reading above 50 percent indicates that logistics is expanding; a reading below 50 percent is indicative of a shrinking logistics industry.

The Inventory Levels Index registered 64.6 percent, a decrease of 1.4 percentage points from the March/April reading of 66.0 percent. The Inventory Cost Index registered 75.5 percent, up 6.6 percentage points from the March/April reading of 68.9 percent. The reduction in the rate of inventory growth may be related to the continually increasing cost of maintaining inventory. The Warehousing Capacity Index registered 59.4 percent, an increase of 2.4 percentage points from the March/April reading of 57.1 percent. The Warehousing Utilization Index registered 54.5 percent, a decrease of 16.0 percentage points from the March/April reading of 70.5 percent. The Warehousing Price Index registered 70.9 percent, an increase of 10.0 percentage points from the March/April reading of 61.0 percent. In this reading, Warehousing Utilization displays the greatest decrease in growth rate, while Warehousing Prices displays the greatest increase in growth rate. The decreased utilization and increased prices suggests a tightening in the Warehousing industry. The Transportation Capacity Index registered 52.6 percent in May/June, a decrease of 9.4 percentage points from the March/April reading of 62.0 percent. The Transportation Utilization index registered 66.3 percent, a decrease of 1.9 percentage points from the March/April reading of 68.2 percent.

Finally, the Transportation Prices Index registered 76.3 percent, an increase of 5.8 percentage points from the March/April reading of 70.5 percent. The increase in Transportation Prices may correspond with the decreased rate of growth in both Transportation Utilization and Capacity – suggesting a tightening in the Transportation sector.

summary table
The dual drop in Transportation and Warehousing Utilization from the last reading may be a troubling sign of difficulty in the future domestic economy.  One of the critical reasons for developing the Logistics Manager’s Index is that logistics components are typically early indicators of changes in the economy. For example, the Recession of 2008-09 was forecasted by a drop in transportation utilization in the summer of 2007. However, the increase in Inventory, Transportation, and Warehouse Prices may indicate that there is not enough fungible capacity available, and that is forcing firms to rethink their logistics component utilization. A specific driver may be the dramatic changes seen in retail as firms try to develop the capacity that will work to support e-commerce sales.
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LMI®

The LMI contracted slightly to 65.0 in the May/June reading. This is the second consecutive period in which the overall index is down by half of a percent. Despite the decrease, our readings still indicate that the logistics industry is growing – and at an incredibly consistent rate. While the overall industry growth has been consistent, the growth and contraction among the specific components tracked in this report have varied widely over the past three readings (covering six months). As mentioned above, the LMI is calculated using a diffusion index, in which any reading above 50 percent indicates that logistics is expanding; a reading below 50 percent is indicative of a shrinking logistics industry.

LMI bar chart

Every reading since the beginning of this project in September has indicated growth in the logistics industry. What has changed is the rate at which the logistics industry is growing. Although the rate of growth is down slightly from the previous period, this reading’s index of 65.0 still indicates strong growth throughout the industry. While we see growth across every metric, it is interesting to note that the rate of growth in our warehousing measures are trending down, while the rate of growth in transportation measures is trending upwards. While the researchers feel strongly that warehousing, transportation, and inventory trends are key economic indicators, the exact relationship between the LMI and the overall economy as indicated by GDP has yet to be established empirically.
previous readings

Inventory Levels
The LMI Inventory Levels Index came in at 64.6 in the May/June reading. This is a decrease of 1.4 percent from the March/April reading, which was 66.0.

The three industries reporting increased rates of Inventory Level growth during the May/June reading are: Apparel & Accessories, Automotive and Consumer Goods. The Electronics, Food & Drug Logistics, Shipping & Transportation, and Warehousing industries reported a decreasing rate of growth in Inventory levels.
inventory levels
Inventory Costs

LMI’s Inventory Costs Index read in at 75.5 percent in May/June. This was an increase of 6.6 percentage points from 68.9 percent in March/April. All metrics related to cost/price are up significantly in this reading.

The seven industries reporting increased rates of growth in Inventory Costs during the May/June reading are: the Apparel & Accessories, Automotive, The Consumer Goods, Electronics, Food & Drug, and Logistics, industries. The Shipping & Transportation and Warehousing industries reported decreased rates of growth in Inventory Costs.

inventory costs

Warehousing Capacity

The Warehousing Capacity Index registered 59.4 percent in May/June.  This is an increase of 2.4 percentage points from the March/April reading of 57.1.

The seven industries reporting increased rates of growth in Inventory Costs during the May/June reading are: the Apparel & Accessories, Automotive, The Consumer Goods, Electronics, Food & Drug, and Shipping & Transportation, industries. The Logistics and Warehousing industries reported decreased rates of growth in Warehousing Capacity.
Warehouse Capacity
Warehousing Utilization

The Warehousing Capacity Utilization Index registered 54.5 percent in May/June.  This is a decrease of 16.0 percentage points down from the March/April reading of 70.5. This is the largest drop in growth rate recorded in this reading, and the largest drop we have ever tracked in this sector.

The two industries reporting growth in this sector were Logistics, and Shipping & Transportation. The Apparel & Accessories, Automotive, Consumer Goods,  Electronics, Food & Drug and Warehousing industries all reported a decreased rate of growth in Warehouse Utilization in this period. This stands in sharp contrast to the previous period’s reading when all industries reported growth in this component.

WH utilization

Warehousing Prices

The Warehousing Prices Index registered 70.9 percent in May/June.  This is an increase of 9.9 percentage points down from the March/April reading of 61.0. This is the largest increase in growth rate measured overall for this reading, and the largest ever for this component since the beginning of the LMI® in September 2016.

Warehousing price grew sharply in this period, with the following six industries: Apparel & Accessories, Consumer Goods, Electronics, Logistics, Shipping & Transportation, and Warehousing reporting an increase rate of growth. The Automotive and Food & Drug industries reported a decreased rate of growth in Warehousing prices in this reading.

WH Prices
Transportation Capacity

The Transportation Capacity Index registered 52.6 percent in May/June.  This is a decrease of 9.4 percentage points over the March/April reading of 62.0. After the decrease in Warehouse Utilization, this is the second largest drop in this reading of the LMI ® (although a larger drop occurred in the Transportation Capacity Index in October of 2016).

The four industries reporting increased Transportation Capacity during the May/June reading are: Accessories & Apparel, Automotive, Shipping & Transportation, and Warehousing. The industries reporting a decreased rate of growth in Transportation Capacity are the Consumer Goods, Electronics, Food & Drug, and Logistics industries.

trans cap

Transportation Utilization

The Transportation Utilization Index registered 66.3 percent in May/June.  This is a decrease of 1.9 percentage points from the March/April reading of 68.2.  The three industries reporting increased

The three industries reporting increased Transportation Utilization growth during the May/June reading are the Accessories & Apparel, Shipping & Transportation and Warehousing industries. The Automotive, Consumer Goods, Electronics, Food & Drug and Logistics industries reported decreasing expansion of Transportation Utilization.

trans ut

Transportation Prices

The Transportation Prices Index registered 76.3 percent in May/June.  This is an increase of 5.8 percentage points from the March/April reading of 70.5.  This is the highest rate of growth tracked in this reading and is tied (with Warehousing Utilization in January/February 2017) as the high rate of growth we have tracked since the beginning of the LMI ®. The four industries reporting an increased rate of Transportation Prices during the May/June reading are the Accessories & Apparel, Consumer Goods, Shipping & Transportation and Warehousing. The three industries reporting a decreasing rate of growth in Transportation Prices are

The four industries reporting an increased rate of Transportation Prices during the May/June reading are the Accessories & Apparel, Consumer Goods, Shipping & Transportation and Warehousing. The three industries reporting a decreasing rate of growth in Transportation Prices are the, Electronics and Food & Drug industries Logistics, industries. The Automotive industry reported no change.

Growth in transportation prices have increased more than any other logistics component measured over the course of the LMI ®.

trans prices
About This Report

The data presented herein is obtained from a survey of logistics supply executives based on information they have collected within their respective organizations. LMI® makes no representation, other than that stated within this release, regarding the individual company data collection procedures. The data should be compared to all other economic data sources when used in decision-making.

Data and Method of Presentation

Data for the Logistics Manager’s Index is collected in a monthly survey of leading logistics professionals.  The respondents are CSCMP members working at the director-level or above. Upper-level managers are preferable as they are more likely to have macro-level information on trends in Inventory, Warehousing and Transportation trends within their firm. Data is also collected from subscribers to both DC Velocity and Supply Chain Quarterly as well. Respondents hail from firms working on all six continents, with the majority of them working at firms with annual revenues over a billion dollars. The industries represented in this respondent pool include, but are not limited to: Apparel, Automotive, Consumer Goods, Electronics, Food & Drug, Home Furnishings, Logistics, Shipping & Transportation, and Warehousing.

Respondents are asked to identify the monthly change across each of the eight metrics collected in this survey (Inventory Levels, Inventory Costs, Warehousing Capacity, Warehousing Utilization, Warehousing Prices, Transportation Capacity, Transportation Utilization, and Transportation Prices). In addition, they also forecast future trends for each metric ranging over the next 12 months. The raw data is then analyzed using a diffusion index. Diffusion Indexes measure how widely something is diffused, or spread across a group. The Bureau of Labor Statistics has been using a diffusion index for the Current Employment Statics program since 1974, and the Institute for Supply Management (ISM) has been using a diffusion index to compute the Purchasing Managers Index since 1948. The ISM Index of New Orders is considered a Leading Economic Indicator.
We compute the Diffusion Index as follows:
PD = Percentage of respondents saying the category is Declining, PU = Percentage of respondents saying the category is Unchanged, PI = Percentage of respondents saying the category is Increasing, Diffusion Index = 0.5 * PD + 0.5 * PU + 1.0 * PI
For example, if 25% say the category is declining, 38% say it is unchanged, and 37% say it is increasing, we would calculate an index value of 0*0.25 + 0.5*0.38 + 1.0*0.37 = 0 + 0.19 + 0.37 = 0.56, and the index is increasing overall. For an index value above 0.5 indicates the category is increasing, a value below 0.5 indicates it is decreasing, and a value of 0.5 means the category is unchanged.  When a full year’s worth of data has been collected, adjustments will be made for seasonal factors as well.

Logistics Managers Index

Requests for permission to reproduce or distribute Logistics Managers Index Content can be made by contacting in writing at: Dale S. Rogers, WP Carey School of Business, Tempe, Arizona 85287, or by emailing dale.rogers@asu.edu Subject: Content Request.The authors of the Logistics Managers Index shall not have any liability, duty, or obligation for or relating to the Logistics Managers Index Content or other information contained herein, any errors, inaccuracies, omissions or delays in providing any Logistics Managers Index Content, or for any actions taken in reliance thereon. In no event shall the authors of the Logistics Managers Index be liable for any special, incidental, or consequential damages, arising out of the use of the Logistics Managers Index. Logistics Managers Index, and LMI® are registered trademarks.

About The Logistics Managers Index®

The Logistics Manager’s Index (LMI) is a joint project between researchers from Arizona State University, Colorado State University, University of Nevada, Reno, Portland State University and Rutgers University, supported by CSCMP.