The LMI, or the Logistics Managers Index, reached an all-time low for the first time in the index’s almost seven-year history in May coming in at a reading of 47.3. Of the 8 subsets that make up the LMI, warehousing capacity was the only category that registered expansion growth. Transportation utilization and transportation prices recorded the fastest month-over-month change in contraction. With utilization dropping from a 55 in April to a 45.5 in May, and prices falling from a 36.8 in April to a 27.9 in May. May’s reading for transportation prices marks the fastest rate of contraction the index has ever registered. As a comparison May of 2022 posted an expansion rate of 65.3 and an expansion rate of 91.2 in May of 2021. The extreme year-over-year rate of contraction indicative of a continued oversaturation of supply coupled with a return-to-normal demand landscape. On the supply side, transportation capacity for both upstream and downstream represent the greatest area of expansion in May; however, has shown an ever so slightly slowdown in the rate of expansion month-over-month.

The ISM PMI, or the Purchasing Managers Index, is similar to the LMI as anything over a 50 represents growth and anything below 50 represents contraction. The PMI is a good indicator of economic activity in the domestic manufacturing realm and over-all this month remained relatively unchanged from April, posting a contraction rate of 46.9%. This is the 6th month of contraction in a row for the overall index, bringing the index’s 12-month average down to a reading of 49.4. Some of the most important subsets of the index as they relate to transportation are customer inventories, new orders, backlogged orders, and imports. According to the report, customer inventories for 8 of the 16 main industries being monitored reported that inventories are too high once future orders have been factored in.  Only 4 reported inventories as being too low: Primary Metals; Food, Beverage & Tobacco Products; Machinery; and Chemical Products, while the remaining 6 reported little-to-no change from April to May. Of the 10 subsets that make up the index, backlogged orders for May represented the greatest rate of contraction. This is the 8th consecutive month of contraction for backlogs.  Taking into consideration new orders contracting for the past nine months and production near the break-even point, one may make the assumption that backlogged orders will more than likely remain in heavy contraction territory for most industries for quite some time. Interestingly enough of the six largest manufacturing indices tracked by the PMI, transportation equipment was the only one that registered growth in May. Imports remain in contraction territory as well and have been for the past seven months falling from a 47.3 in April to a 49.9 in May. This data comports well to FreightWaves Inbound Ocean TEU Volume Index as import levels have remained below both 2021 and 2022 levels for the entire year thus far. Imports are always an important metric to keep an eye on as high import volumes are a good leading indicator of inventory replenishment that ultimately fuels truckload demand.

This has been your Bridge Logistics Market Update for the week of June 14th 2023.