August 2024 LMI

August 2024 Logistics Manager’s Index Report® LMI® at 56.4

Posted on Sep 4, 2024 in Nuts & Bolts

Growth is INCREASING AT AN INCREASING RATE for Inventory Levels, Inventory Costs, Warehousing Capacity, Warehousing Prices, Transportation Capacity, and Transportation Utilization.

Growth is INCREASING AT A DECREASING RATE for Warehousing Utilization and Transportation Prices

The Logistics Manager’s Index reads in at 56.4, down slightly (-0.1) from July’s reading of 56.5. The overall index has now increased for nine consecutive months. The index has been remarkably consistent, reading in at 55.6, 55.3, 56.5, and 56.4 over the last four months (for a standard deviation of 0.5) as the logistics industry has continued its slow, steady expansion. The major move of the August report are Inventory Levels, which are up (+6.1) to 55.7, breaking the streak of contraction that we had observed over the previous three months. This suggests that after running inventories down, firms are building them back up again in anticipation of Q4. This suggests a return to traditional patterns of seasonality that we have not seen since pre-COVID. This buildup of inventories is somewhat tempered by increases in both Warehousing Capacity (+5.0) and Transportation Capacity (+5.8). While it may seem somewhat incongruous for there to be more available capacity when inventories are up, there are some reasonable explanations when we dig into the details.

The expansion of Transportation Capacity could be some smaller carriers or owner-operators “getting off the sidelines”. Transportation Prices read in at 61.6. This means that prices have increased consecutively in seven of the last eight months as well as in the last four. The prices are still nowhere near the highs of 2020-2021, but it is a marked shift from the 18 consecutive months of contraction from July 2022 to December 2023. The signs of new life in the freight market, along with anticipation of the traditional jump in demand that follows the Labor Day holiday, are likely causing some of the capacity that had been sidelined over the past two years to re-enter the market, accounting for the mild increase in available capacity. Warehousing Capacity increased at least partly because Downstream Inventory Levels are still decreasing at 46.3 (although this is a notably slower rate than July’s 40.0). As a result, downstream capacity is increasing significantly faster than upstream (67.6 to 56.8). We would expect this to shift as inventories matriculate downstream to retailers. If this does not happen, it may mark a slower-than-expected peak season. That being said, Warehousing Prices are still up (+2.8) to 63.1, with more of the cost increase coming from Downstream respondents who reported a growth rate of 67.6.

Researchers at Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP) issued this report today.

Results Overview

The LMI score combines eight unique components that comprise the logistics industry, including inventory levels and costs, warehousing capacity, utilization, and prices, as well as transportation capacity, utilization, and prices. The LMI is calculated using a diffusion index, in which any reading above 50.0 indicates that logistics is expanding; a reading below 50.0 indicates a shrinking logistics industry. The latest results of the LMI summarize the responses of supply chain professionals collected in August 2024.

The LMI read in at 56.4 in August, nearly unchanged (-0.1) from July’s reading of 56.5. This continues the run of moderate expansion that we have observed throughout 2024. It is interesting that the rate of expansion in the overall index has plateaued between 55.0 and 56.5 throughout most of the year (with March’s 58.3 and April’s 52.9 being the only exceptions). This is a modest growth rate below the all-time average of 61.8. The overall index has been below the all-time average every month since June 2022, when it read in at 65.0. In their future predictions, respondents predict that within the year, the overall index will reach 62.4, which is consistent with their forecasts throughout the summer and will bring us back in line with that all-time average. The logistics industry is a leading indicator and barometer for economic activity. It will be interesting to continue monitoring these movements over the next year and to see whether or not we see any acceleration past the slow, steady growth that has characterized the logistics industry throughout 2024 (which, it should be pointed out, has been a relief relative to the contraction or anemic growth we saw throughout 2023).

The slow, steady growth of the LMI, in many ways, mirrors the overall U.S. economy. U.S. GDP for Q2 was revised up to 3.0% growth, which is up 0.2% from the initial estimate of 2.8%. Morgan Stanley’s current estimate for Q3 growth is 2.3% (up from the previous estimate of 2.1%)[1]. The PCE price index also came in slightly lower, moving down from 2.6% to 2.5%, providing another data point for the normalization of inflation[2]. This spending comes despite revisions showing that 818,000 fewer jobs were created between April 2023 and March 2024 than were initially reported[3]. This mix of strong spending with a softening labor market significantly increases the chances that the Fed will cut interest rates by at least a quarter point at their September meeting, something that would begin the process of loosening up spending for both the Downstream and Upstream supply chain.

Despite the dip in PCE, Americans increased their spending at retailers in July, with sales up 1% from June’s reading. This is the largest month-to-month increase in consumer spending since January 2023[4]. Spending was spurred by the continued cooling of prices, which rose by only 0.2% from June to July – a far cry from the 2.5% increase from the same period in 2023[5]. There is also a seasonality element; the National Retail Federation (NRF) estimates that U.S. consumers spent $38.8 billion ($875 per household) on back-to-school shopping. This is down slightly from last year’s $41.5 billion spent but still represents the second-highest back-to-school season on record[6]. Despite this, the U.S. economy continues to be tougher on lower-income individuals. This is evidenced by Dollar General reporting a decrease of 25% in its recent earnings report (although it should also be pointed out that Dollar General has raised prices multiple times in the past few years, so some of this could be on the cost side as well)[7]). No matter the cause, executives say these declines may lead them to rethink their inventory management strategies[8]. There are bright spots; however, according to U.S. Bank, 73% of U.S. small businesses will continue to grow in 2024[9].

When looking internationally, we see that inflation has also slowed in the EU, coming in at only 2.2% in August and clearing the way for the European Central Bank to move forward with what many analysts believe will be a quarter-point cut at their September meeting (bringing rates in the EU down to 3.75%)[10]. The Japanese economy grew at a robust rate of 3.1% in Q2, a significant bump from the 0.6% contraction in Q1[11]. Japan is the world’s fourth-largest economy and a major producer of consumer electronics, so growth there often correlates with healthy economic activity around the world. Strong international growth will be positive for outbound logistics. This is also helped by movements in the value of the dollar. While it rebounded a bit in the month’s final days, the dollar was down 2.5% in August, its most significant monthly decline since November of 2023[12]. While this provides some relief for exporters, the dollar is still generally strong.

As mentioned above, the upward movement of Inventory Levels (+6.1) to 55.7 is a shift from the inventory contraction that had characterized the summer and is yet another data point supporting the notion that firms have returned to JIT inventory management practices and are observing traditional patterns of seasonality. For the last few months, inventories have been building up more robustly for manufacturers, wholesalers, and logistics service providers than for retailers. Upstream firms reported Inventory Levels increasing at 59.4, while Downstream firms reported mild contraction at 46.3. Despite this, Inventory Costs are up (+3.3) to 69.0, their highest level of expansion since October of last year. Unlike Inventory Levels, this growth is consistent for Upstream (69.2) and Downstream (70.0) firms.

As mentioned in previous reports, the dichotomy in Inventory Levels is likely indicative of retailers keeping inventories lean to control costs. At the same time, their upstream suppliers build up goods in anticipation of orders to come. These expectations are built on the strong consumer activity discussed above and are manifesting themselves in a steady flow of imports into the U.S. U.S. container imports hit a 26-month high in July. The 2.55 million TEUs are up 11.2% from June and are the third highest level on record[13]. These imports are coming in through multiple points. The port of New York-New Jersey brought in 800,000 TEUs in July. This was its busiest July and seventh busiest ever [14]. Similarly, the Southern California ports continued their hot streak through August and September, consistently reporting incoming TEUs at 20-30% higher rates than last year[15].

The fact that inventories are scheduled to continue coming in at this elevated through the end of September suggests that, at least on the West Coast, the notion from early in the summer that we were only seeing a temporary spike in imports due to firms “getting ahead of the rush” may not have been accurate. This could, however, still be the case on the other side of the country. Negotiations at East and Gulf Coast ports continue to be an issue for importers as the ILA and their 45,000 workers remain “at an impasse.” The two sides, whose contract expires on September 30th, have yet to broker a deal. Ocean carriers and retailers have called on the Biden administration to broker a deal allowing ports to stay open so inventory can continue flowing in through Q4[16]. Despite the continued influx of inventories, Maersk believes that ocean spot rates have peaked, although it is likely that contract rates will continue to increase through Q3[17]. This is at least partly due to the increased Trans-Pacific capacity online this summer[18].

Inventory comes from domestic sources, as orders for durable goods produced at U.S. factories rose 9.9% in July. This is the fifth time in the past six months that U.S. manufacturing orders have increased. Car and truck orders were up 34.8% over the same period[19]. When taken together with the increase in new home sales in July[20], this suggests that consumers may be moving back towards purchases of large ticket items – something that had dried up a bit due to inflation.

Freight volumes are often soft in early August and then pick up towards the end of the month. There is evidence that much of the inventory that has come in through the summer is still sitting relatively close to their ports of entry[21]. We would expect freight to pick up relatively soon. Even without this jump, Transportation Prices (-2.2) are still expanding at a rate of 61.6, meaning they have expanded in seven of the eight months of 2024. The increase comes although the average price of diesel in the U.S. was down by $0.037 in the last week of August to $3.651 per gallon. This is $0.824 per gallon lower than a year ago[22]. As mentioned above, some of the increases (+5.8) in available transportation capacity, which read in at 56.7, maybe due to capacity re-entering the market with the expectation that prices will increase. That demand will continue to grow after Labor Day. Clear signs of price bumps are on the horizon. UPS, FedEx, and DHL have announced that they will add peak-season surcharges this fall – most starting in September. DHL U.S. CEO Greg Hewitt recently stated that volumes are up, citing patterns similar to traditional seasonality, suggesting a busy upcoming shipping season[23].

Even before these shifts, the freight market was more robust than last year. Freightwaves’ measure of the outbound tender rejection rate was relatively stable at 4.4% in the last week of August[24]. This steadiness is reflected in the fairly consistent reading from Transportation Utilization (+0.3), which reads at 59.5. Looking at other modes of transportation, U.S. intermodal volumes are up 8.5% through the first seven months of the year, suggesting that retail inventories have moved noticeably faster in 2024[25]. This growth is increasing in August. Containers and railers were up 17.1% year-over-year in the last week of August. Beyond the previously mentioned buildup of inventories, this surge is also fueled by outbound agricultural shipments, marking the start of the traditional harvest season[26]. Overall, U.S. rail traffic was up 9.5% year-over-year, with 516,807 carloads and intermodal units being shipped in the last week of August. This comes after an increase of 8% year-over-year earlier in the month. Mexican volume was up over the same period by 6.8%[27]. Some of this increase in volume may have also been due to the temporary labor lockout last week at Canada’s two largest railroads (Canadian National and Canadian Pacific Kansas City), which had left significant U.S.-bound cargo stranded[28]. The lockout has temporarily been lifted due to the actions of the Canadian government disallowing work stoppages during ongoing arbitration[29]. Despite earlier reports to the contrary, until the two sides come to a signed agreement, disruption of goods coming into the U.S. and Canada through the critical port of Vancouver remains possible. Maersk has continued to accept loads that will require Canadian rail to move across the country[30]. This suggests that carriers would rather risk inventory getting stuck than to fall behind and miss out on potential holiday business.  In the US, CSX reported a profit of $963 million in Q2, down 2.1% year-over-year. This drop is partly because, while intermodal volumes were up 5%, carloads for commodities such as coal were down notably[31].

Warehousing Capacity most reflects the Upstream/Downstream dichotomy we observed with Inventory Levels. Available space was significantly tighter for Upstream firms (56.8) than their Downstream counterparts (67.6). This is consistent with the notion that a significant amount of inventory still sits near its entry point, waiting to move to retailer shelves. Overall Warehousing Capacity is up (+5.0) to 59.5, the highest value since last November. Despite the increased available space, warehousing prices continue to grow (+2.8), at 63.8. Last month, when prices were down to 60.9, we mentioned that this metric has only once read in below 60.0 and wondered if that would happen again; with August’s increase, along with the likelihood that retailers will begin stocking up soon, it seems unlikely that will happen in 2024. One factor in the continuous growth of warehousing prices is the labor cost. The National Labor Relations Board (NLRB) denied Amazon’s request to throw out an earlier decision allowing union formation in one of their New York fulfillment centers. With this ruling, Amazon will likely have to sue the NLRB and attempt to bring the case to another court. This was likely the final possible appeal, leaving Amazon to begin negotiations with the union or sue the NLRB. Amazon is unlikely to begin negotiating with the union while the decision is still being made in arbitration. Amazon’s capitulating to the formation of the union in New York would likely open the door to more unionization and could significantly impact the warehouse labor market and associated costs[32].

The rate of increase for Warehousing Utilization was down slightly (-0.3) to 57.6, representing a mild growth rate. Walmart recently announced that it will enter the 3PL space, allowing other parties to utilize its vast fulfillment and distribution networks. A friend of the index, Dr. Lisa Ellram, speculates that, like Amazon before it, Walmart is rolling out this strategy to better utilize excess capacity[33]. At the same time, data centers continue to emerge as a significant driver for industrial real estate. Colorado-based developer Tract recently purchased 2,100 acres outside of Phoenix as the first step toward developing several large data centers. This is part of the 4.5 gigawatts of capacity expected to begin construction by 2025. The total current U.S. capacity is 6.7 gigawatts, representing an increase of more than 60% above the existing capacity[34]. 

Respondents were asked to predict movement in the overall LMI and individual metrics 12 months from now. Respondents continue to be largely optimistic about the future of the logistics industry, predicting an overall growth rate of 62.4, which is up slightly (+0.4) from July’s future prediction of 62.0 and is 7.0 points higher than the current reading of 55.4. The future predictions are remarkably consistent with last month’s forecast, with an average of 2.4 points separating future predictions from July and August. This would be even lower without the 4.6 and 5.5-point increases for Warehousing Utilization and Prices, respectively. This month-to-month consistency suggests that respondents are confident in continued sustainable growth across the supply logistics industry over the next 12 months. 

In a continuation of what we have seen all summer, there is a significant difference in the feedback from Upstream (blue bars) and Downstream (orange bars) respondents regarding Inventory Levels. Once again, upstream firms report expansion in inventories (59.4) while downstream firms report contraction (46.3). In both cases, the rate of change has jumped by about 5.0 points from July. Upstream firms are adding inventories more quickly, and Downstream firms are seeing inventories contract slower. As a result of these differences in inventory levels, downstream firms are seeing warehousing capacity expand marginally faster (67.8) than their upstream counterparts (56.8). Beyond these two metrics, the readings were highly similar in July, averaging a difference of only 1.7 points between the two groups. As mentioned above, U.S. retail sales and manufacturing orders have been up in the last month, so it is possible that the inventories building Upstream are anticipatory and will be moved Downstream as we get closer to the holiday shopping season.

Also similar to last month, future predictions show more variation between Upstream (green bars) and Downstream respondents (purple bars). Once again, Upstream firms anticipate a significantly higher expansion rate in Inventory Levels (64.6 to 46.3). Higher inventories lead to a tighter expected market for Warehousing Utilization (51.9 to 68.4) and Transportation Capacity (50.0 to 61.5) 65.5 to 42.9), Inventory Levels (76.8 to 57.4), Transportation Utilization (72.1 to 60.3), which in turn lead to higher expectations for Transportation Price growth (78.7 to 69.2 – which are significantly different but both indicative of robust rates of growth). These also lead to a significantly greater expectation of growth in the overall index for Upstream firms (65.6 to 55.7). Upstream firms expect a more robust logistics industry next year than their Downstream counterparts. This may indicate the greater impact of lowered interest rates on manufacturing and capital expenditures than retail sales.

 Feedback from respondents was remarkably similar between early (gold bars) and late (green bars) August. The only marginally significant difference was an increase in inventory costs. The jump in Inventory Levels for Downstream firms from July to August may reflect more goods moving to retailers for things like back-to-school shopping. We had speculated in last month’s report that the movement of inventories from contraction in early July (where they had been all summer) to expansion in late July could portend a movement back to increasing inventories through peak season. This could be the case based on the consistent growth of Inventory Levels we observed through August.

 We also note a difference between the responses of larger firms (those with 1,000 employees or more, represented by gold lines) and smaller firms (those with 0-999 employees, represented by maroon lines). In August, larger firms reported significantly lower rates of available Transportation Capacity than their smaller counterparts at a rate of 51.7 to 62.5. The lower rate is more in line with the trends we have seen regarding transportation capacity for the previous two months. This difference may be due to larger firms being more aggressive with rebuilding inventories early and trying to stay ahead of costs. If they have greater cash on hand and more space to store goods, they may be part of the ongoing surge of inventories coming into the country. Conversely, smaller, more cash-strapped firms may wait until we close to peak season to bring in inventories and mobilize available fleets. Whatever the reason for this difference, it is significant enough that, despite the other seven metrics showing no statistical significance, it is enough to push the overall index to reach a marginally significant difference between large and small firms.

The index scores for each of the eight components of the Logistics Managers’ Index and the overall index score are presented in the table below. The overall index’s rate of expansion is down very slightly (-0.1) to 56.4. Inventory Levels, contracting for the last three months, moved back into expansion (+6.1) at 55.7. The other seven metrics continued to expand, with only Warehousing Utilization and Transportation Prices increasing at a decreasing rate.

 Historic Logistics Managers’ Index Scores

This period, along with prior readings from the last two years of the LMI, are presented in the table below:

LMI®

The overall index reads in at 56.4, essentially unchanged (-0.1) from July’s reading of 56.5. This continues the run of readings in the mid-50s and the mild but steady growth that has characterized 2024. Last August’s reading was 51.2, the first expansion reading after three consecutive months of contraction. Other than December 2022, when it dipped due to the depletion of inventories over the holidays, the overall index has been relatively stable. As discussed above, respondents expect growth to increase during the next 12 months to values in the low-60s. It seems likely that if this is to occur, it will happen over the next few months during peak season. The overall index grew steadily across the supply chain, with no significant differences between Upstream vs. Downstream (56.4 to 55.4) or early vs. late August (54.7 to 57.5 ) firms.

When asked to predict conditions over the next 12 months, respondents foresee a rate of expansion of 62.4, up very slightly (+0.4) from July’s future prediction of 62.0. The dynamics that were present in July continue into August, as Upstream respondents have greater optimism for the overall index, predicting an expansion of 66.2, which is significantly higher than the 57.5 predicted by their Downstream counterparts.

Inventory Levels

The Inventory Level index is 55.7, up (+6.1) from July’s reading of 49.5 and breaking a three-month streak of contraction. Inventory Levels had been contracting in 10 of the previous 10 months, it will be interesting to see if this shift towards expansion holds through the year. If firms truly have moved back towards JIT and normal seasonality, we might expect them to come down again at the end of the year after the holiday sales season. The move to expansion was driven by Upstream firms. Upstream respondents returned a value of 59.4, while downstream respondents returned 46.3, a statistically significant difference of 13.2. As discussed above, this is likely due to inventories waiting upstream near ports of entry or distribution hubs. If traditional seasonality holds, we should see this matriculate to retailers within the next 1-2 months. This metric was consistent across early (55.9) and late (55.3) August.

When asked to predict what conditions will be like 12 months from now, the average value is 58.8, very similar (+0.7) to July’s future prediction of 58.1. Like last month, Upstream respondents are more bullish on a buildup of future inventories, predicting expansion at 64.6, contrasting with Downstream’s prediction of contraction – and shades of JIT – at 46.3.

Inventory Costs

Inventory costs read in at 69.0, up (+3.3) from July’s reading of 65.7, indicating significantly increasing costs. Unlike Inventory Levels, a significant driver of inventory costs, the inventory cost index has had no decreasing levels in the last year. Costs were high on both sides of the supply chain in August. Upstream firms reported an increase of 69.2, while Downstream reported a reading of 70.0. Upstream firms are seeing growth due to the inventory buildup discussed above. Costs being as high as they are for Downstream firms indicates that Inventory Levels are being held down as part of a JIT strategy, turning over quickly and fueling consumer sales while keeping costs as low as possible. The costs only increased throughout the month, with early August returning a value of 65.3 and later August returning a value of 72.9.

Predictions for future Inventory Cost growth is 70.8, nearly identical (+0.2) to July’s future prediction of 70.6. Once again, Upstream firms are slightly more bullish on this metric, forecasting a growth rate of 73.3 to Downstream’s 65.4. When compared to July’s 19.4-point difference in future predictions, this 7.9-point gap represents a convergence in expectations for both groups.

Warehousing Capacity

The Warehousing Capacity index increased by 5 points in August and remained in expansionary territory (59.5). This reading is less than one point down from the reading one year ago and was up a considerable 17.2 points from the reading two years ago. In addition, there was a 10.7-point split between Upstream (56.8) and Downstream (67.6) which was not statistically significant. Comparing the differences between small (<999 employees) and large (>999) employers, we see that these values are 59.0 and 60.3, respectively. This 1.2-point split was not statistically significant either.

When asked to predict what conditions will be like 12 months from now, respondents expect Warehouse Capacity to expand at 56.7, up (+1.7) from July’s future prediction of 55.0. This suggests that there will be new capacity over the next year, but not so much that it will dampen price expansion in a significant way. Future Upstream expectations (51.9) are significantly lower than Downstream expectations (68.4). This 16.4-point split indicates what would amount to an unusual level of divergence.

Warehousing Utilization

The Warehousing Utilization index read in at 57.6 in August, almost unchanged (-0.3) from July’s reading of 57.9. This continues the movement away from June’s reading of 52.6, the second-lowest index reading in history. This reading is also virtually unchanged (.2-point change) from the 57.8-point readings from one year ago and is down 7.7 points from the reading two years ago. In addition, there was a 1.8-point split between Upstream (57.4) and Downstream (59.2), which was not statistically significant (p>.1). Comparing the differences between small (<999 employees) and large (>999) employers, we see that these values are essentially identical 57.7 and 57.69 respectively. This 0.01-point split was not statistically significant (p >.1).

When asked to predict what conditions will be like 12 months from now, respondents expect Warehouse Utilization to increase at 66.9, up (+4.3) from July’s future prediction of 62.3. Warehouse Utilization is expected to continue to stay in expansionary territory one year out, with future Upstream expectations (67.0) being predicted to be virtually identical to Downstream expectations (67.1), where this .1-point difference is not statistically significant (p>.1).

Warehousing Prices

The Warehousing Price index read in at 63.8, up (+2.9) from July’s reading of 60.9. down (-3.6) This reading is mainly unchanged from the reading one year ago (up 1.4 points) and down a sizable 11.2 -points from the reading two years ago. In addition, there was a minor (3.1)-point split between Upstream (63.1) and Downstream (66.2), which was not statistically significant (p>.1 Comparing the differences between small (<999 employees) and large (>999) employers, we see that these values are 61.8 and 65.8, respectively. This 4.1-point split was not statistically significant (p >.1).

When asked to predict what conditions will be like 12 months from now, respondents expect Warehouse Prices to increase at a rate of 68.8, up (+5.5) from July’s future prediction of 63.3 and indicating a robust but sustainable increase in storage costs. Warehouse Prices are expected to stay in expansionary territory one year out, with future Upstream expectations (71.4) being higher than Downstream expectations (64.9). This 6.6-point difference was not statistically significant (p>.1).

Transportation Capacity

The Transportation Capacity Index registered 56.7 percent in August 2024, an increase of 5.8 percentage points from last month’s reading. This substantial increase clearly indicates expansion. There is no significant difference between the Upstream and Downstream transportation capacity indexes, with the Upstream index at 57.0 and the Downstream index at 56.3. As such, the expansion in Transportation Capacity is distributed relatively uniformly across the supply chains.

The future Transportation Capacity index is up 2.4 points, indicating 52.4 and showing expectations of slightly expanding Transportation Capacity over the next 12 months. While the Upstream index is an even 50, indicating constant capacity for the next year, the Downstream Transportation Capacity index is significantly higher, indicating expectations of expansion at 61.5.

Transportation Utilization

The Transportation Utilization Index is up a mere 0.3 points from last month, indicating 59.5 in August 2024. With this increase, the index is getting close to the high mark recorded in October 2023. The expansion is uniformly spread across the supply chain, with the Downstream Transportation Utilization Index now reading 58.8 while the Upstream index indicates 60.0.  This difference is not statistically significant.

The future Transportation Utilization Index dropped 2.6 points from the last reading but continues to indicate expansion at 66.2 level for the next 12 months.  The Upstream Transportation Utilization index is 65.2, while the Downstream index is 67.9. The difference is not statistically significant.

Transportation Prices

The Transportation Prices Index indicated 61.6 in August 2024, corresponding to a decrease of 2.2 points from the previous month. With this modest decrease, the upward trend in the Transportation Prices Index is broken. What remains to be seen is whether the break will turn into a downward trend or will only constitute a brief pause. The Upstream index is 61.9, and the Downstream index is 59.0, but this difference is not statistically significant.

The future index for Transportation Prices dropped another 1.4 points to 76.6. Despite the drop, the index indicates strong expectations of higher Transportation Prices in the next 12 months. The Downstream Transportation Prices index is 69.2, while the Upstream Transportation Prices index is 78.7. As such, expectations of higher transportation prices over the next year remain strong, and there may be some signs of relief downstream.

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 = 0.0 * PD + 0.5 * PU + 1.0 * PI

For example, if 25 says the category is declining, 38 says it is unchanged, and 37 says 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 growing overall. 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.