Transportation Industry: US Inventory Status Check with LMI


The author is an analyst of NH Investment & Securities. He can be reached at ys.jung@nhqv.com — Ed.

Herein, we use the LMI to check on the status of the US logistics industry. In general, as inventory rises, warehousing capacity depletes and inventory costs climb. Inventory growth at wholesalers upped markedly in August. Transportation costs turned downward in line with an expanded number of inland trucks.

LMI confirms inventory growth

The Logistic Managers’ Index (LMI) grasps the status of logistics activities through a survey of more than 100 major logistics managers and supply chain management experts. The categories investigated include inventory level, inventory cost, warehousing capacity, utilization rate, transportation capacity, and transportation cost. The LMI is announced on the first Tuesday of every month. A reading over 50p indicates expansion, while a reading below 50p suggests contraction.

We can confirm the following four key trends through the recently released August LMI:

1) Although the pace is slowing somewhat, inventory levels are still growing;

2) Warehousing capacity continues to decrease due to higher inventory, and inventory-related costs are rising;

3) Inventory growth is faster in the upstream (logistics between producers and warehouses) than in the downstream (logistics warehouse-retail seller), in turn amplifying producers’ inventory burdens;

4) Transportation costs have turned to fall as transportation capacity is growing in line with an expanding number of inland trucks.

Sea and inland transportation cost dropping in areas confirming lower cargo volume

As inventories in the US continue to rise, producers’ inventories are increasing more rapidly as retailers cut orders, a factor which could exacerbate the contraction trend in cargo volume in 2H22. The FedEx’s preliminary 1Q23 (fiscal year; Jun~Aug earnings) earnings results show a slowing in freight volume, and also indicate that this slowdown trend strengthened towards end-1Q23. This development is associated with a 30% drop in the Shanghai Container Freight Index (SCFI).

Transportation costs are rapidly declining due to increased supply from a climbing number of inland US carriers. Container shipping rates also fell sharply. The fact that freight rates are on the decline despite worsening port congestion and rising occupancy rates at ports in the eastern US and Europe shows that it is not easy to defend freight rates through supply control.

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