November 2024 Logistics Manager’s Index Report® LMI® at 58.4

Posted on Dec 5, 2024 in Nuts & Bolts

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

Growth is INCREASING AT A DECREASING RATE for: Inventory Levels, Warehousing Utilization, and Transportation Prices.

 The November Logistics Manager’s Index reads in at 58.4, down slightly (-0.5) from October’s reading of 58.9 which was the fastest expansion rate since September 2022. The overall index has now increased for twelve consecutive months, marking a full year of expansion since November 2023’s reading of 49.4. Growth has been highly consistent over the past three months, with the overall index reading in at 58.6, 58.9, and 58.4 in September, October, and November. This consistency is further evidence for the thesis that the logistics industry has been expanding steadily and sustainably. The overall index is up 9.0 points from this time a year ago. Unlike many of the market shifts we observed in the past, this one was not a sudden spike stemming from an external jolt (e.g. pandemic, tax cut, international conflict). Instead, the story of the logistics industry in 2024 has been a healthy, organic recovery based on steady improvements in the economy’s fundamentals.

The most notable movement in the LMI this month is the predicted slowdown in the expansion of Inventory Levels, which dipped (-3.3) to 56.1, keeping with normal patterns of seasonality. The slowdown in the build of inventory trickled down to a slowing expansion in Warehousing Utilization (-4.0 to 58.9) and Transportation Prices (-0.3 to 63.8), as well as increases in both Warehousing (+0.8 to 56.7) and Transportation (+1.7 to 52.6) Capacity. Conversely, we also observe increasing rates of expansion in Inventory Costs (+2.9 to 68.8) and Warehousing Prices (+0.8 to 68.8) which are the two fastest rates of expansion in this month’s reading. Taken together this shows that inventory is moving through supply chains to retailers and onto customers. Overall Inventory Levels are lower because there is less inventory in the system than there was in October, but costs are higher because a greater percentage of the inventory that remains is being held by retailers where costs are often higher due to their location closer to consumers.

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 is a combination of eight unique components that make up the logistics industry, 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 50.0 indicates that logistics is expanding; a reading below 50.0 is indicative of a shrinking logistics industry. The latest results of the LMI summarize the responses of supply chain professionals collected in November 2024.

The LMI read in at 58.4 in November, down very slightly (-0.5) from October’s reading of 58.9.  in October, which is up (+0.3) from September’s reading of 58.6, which was the fastest rate of expansion for the overall index since September of 2022. This is also a far cry from this time a year ago, when the overall index read in 9.0 points lower and was contracting at a rate of 49.4. This year-over-year shift epitomizes what we have seen throughout 2024. Whereas in 2023 the logistics industry was still in the grips of the freight recession caused by a combination of high inflation and excess inventories, in 2024 we have seen a return to normal patterns of seasonality. This normalization has led to the most month-to-month predictability of any year in the 2020’s (a decade which is now nearly halfway over) which has in turn led to a pattern of slow and steady growth over the past 12 months.

The steady growth of the LMI is reflective of the dynamics in the overall U.S. economy. Consumer spending was up in October, something that can be at least partially attributed to disposable income rising at an increased pace over the same period. U.S. wages have been growing faster than the rate of inflation for approximately two years, which is being reflected in spending[1]. This is a continuation of the overall growth the U.S. economy saw in Q3 when GDP expanded at 2.8%. This is down slightly from the 3% expansion observed in Q2 but is still a healthy rate of growth. The U.S. economy has seen GDP increase by 2% or more in eight of the last nine quarters[2]. The U.S. Consumer Confidence Index (CCI) reached 111.7 in November, which is up from October’s reading of 109.6. Expectations are also up (+0.4) to 92.3 which signals anticipation of strong growth[3]. It is also notable that respondents from smaller firms reported a significantly faster rate of growth than their larger counterparts at a rate of 63.0 to 56.3. This is notable as smaller firms had been lagging behind larger firms through much of the last year. Many of them never stocked up significantly in 2023 and the fact that they have added inventory (in November they reported expansion of 63.4 to larger firms’  no movement of 50.0) suggests that they are much more confident about the general direction of the economy.

The belief by both small and large firms that the economy will be strong in Q4 seems to be affirmed by the strong Thanksgiving to Cyber Monday, also known as “Cyber Week”, sales, as well as the consumer activity that preceded it. Consumer spending in October was 0.8% higher than in September and up 2.8% year-over-year. This growth is more impressive when honing in on core retail sales (stripping out automotive purchases, food, and gas), showing that consumer spending on goods and services was up 5.4% from the same period in 2023. The NRF is predicting that this trend will continue, forecasting an increase of 2.5%-3.5% in retail sales in November and December[4]. Regular Gasoline came in at $3.044 per gallon in the last week of November which is down 19 cents year-over-year, potentially freeing up spending capacity on goods[5]. Bain and Company forecasts that U.S. retail sales will reach $75 billion from Black Friday to Cyber Monday, which would represent an increase of 5% year-over-year. This would also signal a bit of a shift back towards traditional consumer behavior, as this level of spending would constitute 8% of overall holiday sales – the highest share since 2019. Adobe expects that $40.6 billion of this spending will come via e-commerce, which would lead to a busy cyber-week for last-mile shipping[6]. Preliminary data shows that Americans spent $10.8 billion in online shopping on Black Friday alone, which is an increase of 10.2% from last year[7]. This increased activity would seem to validate the significant movements of inventory that we have tracked through the summer and fall in this report. Retailers have been betting all year that consumers would turn out in Q4, and based on the activity during cyber week, that bet seems to be paying off. While the economy has generally been on the right track, there are some flies in the ointment, as inflation in general continues to be tricky – or perhaps the right descriptor is “sticky” – the EU continues to struggle with top-line inflation and the U.S. PCE was up 2.8% year-over-year, explaining the caution that many central banks have demonstrated in their programs to bring down interest rates[8].

The other potential complication on the horizon is the possibility that the incoming administration will implement tariffs that could potentially disrupt global supply chains that have on some levels only recovered from the pandemic within the last 12-18 months. According to Goldman Sachs, the enacting of all of the incoming administration’s proposed tariffs would lead to 1% inflation for the PCE, which would greatly complicate the Fed’s movement to lower interest rates[9]. Best Buy CEO Corie Barry recently told reporters that significant changes in trade policy will lead to increased costs which will likely be passed down to consumers. Approximately 60% of Best Buy products are produced in China and its second-largest source is Mexico. Representatives from Lowe’s and AutoZone made similar statements in recent weeks about passing costs to consumers[10]. Many other retailers might also follow this strategy. One complication however is that consumers are already tired from years of high inflation, and may not have the same capacity to absorb price increases that they did in 2018 and 2019 when importers employed similar strategies[11]. General spending on electronics could potentially suffer as estimates from Yahoo Finance predict that laptops, video game consoles, and smart phones will be among the products that would be most impacted by the incoming administration’s proposed tariffs. Walmart CFO David Rainey is also concerned about the inflationary nature of tariffs, but notes that they have been a constant in both the prior Trump, and current Biden, administrations; meaning the U.S.’s largest retailer has some experience in dealing with trade regulation[12]. The comment from Rainey does highlight the important fact that U.S. importers have diversified extensively since the implementation of tariffs in 2018, with many migrating towards a “China+1” strategy.

While this diversification has been widespread, one of the primary shifts from U.S. importers has been towards Mexico. Therefore, the incoming administration’s stated goal to implement 25% tariffs on Mexico and Canada (the U.S.’s largest trading partners) on “day one”, calls into question the newly developed resilience of many supply chains. If however, those proposals are merely the opening salvos in a negotiation aimed at revising the USMCA (which is due to be renewed in 2026) as some analysts expect[13], than perhaps some of the most significant potential tariffs will not be enacted. There is already some evidence of this thesis, as both President-Elect Trump and Mexican President Claudia Sheinbaum have commented on a recent phone call that seems to have cooled the potential for a tariff war between the U.S. and its biggest trading partner[14]. The U.S.-Mexico border plays a significant role in U.S. logistics. The Laredo, TX crossing is the busiest truck port in the U.S., accounting for $260 billion in crossings by truck, and another $50 billion by rail, in 2023[15]. A significant investment in warehousing, freight terminals, and other logistics infrastructure supports this, and several other cross-border ports, meaning that any disruption could have a significant impact on U.S. logistics operations. This would be particularly pronounced in auto manufacturing, which relies heavily on the ability to move components back and forth between the U.S. and Mexico without accruing tariffs[16]. Canada is worried about the impact of potential tariffs as well, particularly given their sluggish growth in Q3 when GDP only increased by 1%[17].

U.S. trading partners in the EU are also concerned about a potential move towards protectionist policies as well. The Eurozone recovered much more slowly from the pandemic than the U.S. and is only recently exiting its long period of stagnation. Germany, long the engine of Euro growth, is projected to see its economy contract by 0.1% in 2024, which would be its second consecutive year of contraction. Germany and the rest of the EU is expecting an economic recovery in 2025, but the European Central Bank has noted that this recovery may be stalled if trade tensions once again arise with the U.S.[18].

Perhaps the most troubling news on this front comes from China. Despite the diversification of U.S. supply chains away from the previous over-dependence on China, they remain the third-largest trade partner of the U.S. and a critical supplier of several goods such as electronics. China has signaled that it will react to additional trade restrictions more forcefully than it has in the past. The retaliatory actions they have foreshadowed include cutting off access to critical rare earth metals such as lithium, or adding U.S. producers to their “unreliable entities” list – allowing them to restrict their access to Chinese labor or suppliers[19]. This comes as Chinese factories seem to be revving back up. Chinese factory activity is up slightly, with the manufacturing PMI reading in at 50.3 in November. This exceeds forecasts and may suggest that inventory will continue to stream in from China in the short-term[20]. Inbound and outbound tariffs could also potentially benefit Warehousing in Foreign Trade Zones (FTZs) as FTZs allow shippers to avoid or mitigate trade duties in transnational shipping[21].

It is impossible to say what will happen with trade policy in the near-term. As of this writing the second Trump administration is still 50 days away, it is likely that policies will continue to evolve, and the threat of tariffs may merely be a negotiation tactic. However, it is worth pointing out that the U.S.-China trade war, which began in the summer of 2018, led to a decrease in freight traffic for both imports and exports and was one of the factors behind the freight recession of 2019 to early 2020. That being said, the 2018 tax cut was one of the things that had pushed freight into a boom in the first place – something that may be reflected in the strong uptick of many trucking stocks immediately following the election (when the Dow Jones Transportation index surged 6.6 points to a 52-week high) . There will be several dynamics at play in the logistics industry that could shift depending on the policies of the incoming administration. What exactly those policies are may well be the biggest logistics and supply chain story of 2025.

As for the here and now, November’s report saw continued growth in Inventory Levels at 56.1. While this is down (-3.3) from October’s reading of 59.4 it represents four consecutive months of expansion, as well as a much more robust November than we saw last year, when Inventory Levels contracted at a rate of 44.3 as part of a run of seven of eight months of contraction. Much of November’s expansion in Inventory Levels was driven by smaller firms, that reported an expansion of 63.4 to the “no movement” reading of 50.0 reported by larger firms. The increase in Inventory Costs (+2.9) to 68.8 comes despite the slowing growth of inventories and suggests that a greater proportion of the inventory in the system has moved downstream to retailers, that often have more expensive holding costs.

There are indications that this inflow of inventories will continue for the foreseeable future. The Port of LA continued its hot streak through November as imports were up approximately 20% year-over-year. This trend looks to continue going forward, with TEU’s moving through LA expected to be up 28% year-over-year in the first week of December[22]. The NRF expects that 2.15 million containers will be imported into the U.S. in November, which is up 13% from the forecast one month ago. The increase could likely be attributed to a combination of concern about tariffs and the potential for a port strike in early 2025. Port Executive Director Gene Seroka reported that, for the first time ever, the Port of LA has now handled more than 900,000 TEUs in four consecutive months. Seroka has attributed this rapid movement to strong consumers and a robust economy. Despite this growth, average dwell time is down to 6.5-8.5 days, suggesting that containers are turning over quickly once they hit the port and demonstrating how U.S. supply chains have increased their capacity and resiliency over the last few years. Containers imported into the U.S. are up approximately 8% year-over-year[23].

There could be an interruption to imports in the form of potential port strikes in 2025. Recall that the resumption of work at East and Gulf Coast ports in October was merely a ceasefire scheduled to run until late January. Workers got the concessions they were seeking in terms of pay, but there has been no agreement on the contentious issue of automation at the ports. Analysts believe that the incoming Trump administration will be more sympathetic to employers relative to the Biden administration[24]. This could potentially open the door to the invocation of the Taft-Hartley Act, which could force a resumption of activity should ILA members strike again.

Whatever inventory does come through will find available space, but at potentially high cost. Warehousing Price is up (+2.9) to 68.8, which is the fastest rate of expansion for this metric since October of 2023. Some of these storage costs are associated with the movement of inventories to downstream retailers. This movement is evident in Downstream firms reporting significantly faster rates of expansion in Warehousing Utilization at 66.1 to the 55.1 reported by their Upstream counterparts. Overall Warehousing Utilization is still expanding at 58.9, but at a slower rate (-4.0) than last month. Some retailers are getting creative to avoid this ongoing cost crunch. E-commerce now makes up 16.2% of all retail sales in the U.S. which is nearly on par with the all-time highs reached during the lockdowns of mid-2020. Interestingly, many retailers such as Ulta, Lowe’s, and PetSmart, are responding to this demand by using third-party apps such as DoorDash to fulfill e-commerce orders directly from their brick-and-mortar stores, allowing them to avoid the cost of leasing or operating additional fulfillment center space. Many of the stores using this type of delivery service are located in urban areas near consumers which facilitates the next- and same-day delivery that consumers are seeking[25]. This movement has happened despite the continued expansion (+0.8) of Warehousing Capacity which read in at a rate of 56.7 in November. This marks eight consecutive months of mild expansion in the 50’s for Warehousing Capacity, providing evidence that the lack of space that characterized 2021-2022 has passed.

Transportation continued on its ongoing trajectory in November. Transportation Prices continued expanding at 63.8. This is down slightly (-0.3) from October’s reading of 64.1 but is still tied as the second-highest reading of the last two years and offers further evidence that the freight market has moved back into equilibrium. This came despite the continued decline in fuel costs. U.S. Diesel fuel cost $3.539 per gallon in the last week of November, approximately 61 cents down from the same time a year ago[26]. The price was even lower the week before, reaching $3.491 per gallon which was its lowest reading in over three years[27]. As was the case with Inventory Levels, this activity is being driven by our smaller respondents, who reported a significantly faster rate of expansion at 69.1, 10.3 points higher than the expansion of 58.8 reported by larger firms.

We also see a difference depending on respondent size for Transportation Capacity. Smaller firms reported contraction in available capacity at 47.8. Meanwhile, larger firms saw expansion at 56.7. This suggests that smaller firms may be having difficulty securing freight on the spot market. This is likely due to seasonal tightness in the market and may also explain the difference we see between the two groups in price. Overall Transportation Capacity was up (+1.7) to 52.6 after lingering near no movement at 50.8 in October. This upward move continues the trend of more capacity coming online as prices increase, showing that this freight market still has excess capacity waiting to absorb volume. Interestingly, Transportation Capacity was tighter in the second half of the month, dipping from expansion at 57.3 from 11/1-11/18 to contraction at 49.1 from 11/19-11/30. Transportation Capacity has not contracted for a full month since March of 2022. The market has always had excess capacity ready to come online any time prices increased. It will be interesting to track whether or not the trend from later November continues in December (when, it should be noted Transportation Prices were expanding at a rate of 61.4), or if the pattern we have been seeing holds and available capacity increases. If we were to see Transportation Capacity contract in any month December would be a strong candidate due to last minute holiday shopping. It will be fascinating to see which direction this goes next month.

One anecdote in favor of expansion in transportation is evident at LTL carrier Roadrunner where chair Chris Jamroz and investor Ted Kellner have combined to take an 80% stake. They play to inject significant capital into the carrier with an eyre towards acquisitions[28]. It is possible that they see an opportunity among other cash-poor carriers and are looking to expand now before a stronger freight market drives up prices. We also see positive signs in rail as U.S. rail traffic was up 25.6% year-over-year in the last week of November, with 5205,798 carloads and intermodal units moving across the country. Through the end of November carload traffic is up 2.7% year-over-year and intermodal volume is up 9.5%[29].

Finally, Transportation Utilization is back up (+0.8) to 60.5. This is the first reading above 60.0 for this metric since October of 2023, and only the second time in over two years that Transportation Utilization has hit that level. As we saw with warehousing, Transportation Utilization was driven by Downstream firms, who out-expanded their Upstream counterparts at a rate of 67.2 to 57.6, providing further evidence of an accumulation of inventory at the retailer level. We also note that Transportation Utilization expanded throughout the month, but at a significantly faster rate in early November (67.1) than in the second half of the month (55.6).

Respondents were asked to predict movement in the overall LMI and individual metrics 12 months from now. Respondents remained optimistic in November, predicting expansion in the overall index at a rate of 63.6, down (-2.1) from October’s future prediction of 65.7 but still above the all-time average of 61.7. Respondents are slightly more bullish (+2.1) on expansion in Inventory Levels at 62.8 with subsequent predictions of strong growth in Inventory Costs +1.9 to 69.9), Warehousing Prices (+0.4 to 73.9). Despite the high expectations for costs, respondents are anticipating stronger growth in available capacity, with Warehousing Capacity up (+7.5 to 59.4) and Transportation Capacity (+7.8 to 53.5) moving from a prediction of contraction to one of expansion. Even with this capacity growth, Transportation Prices are still expected to expand (-0.1) at the very robust rate of 80.9. The cumulative cost predictions add up to 224.7, which is higher than what we have seen in the last two years but would not necessarily be inflationary. Taken altogether, respondents are predicting a busy 2025 in the logistics industry, but with enough flex capacity that price growth will be high but not crushingly so, continuing the ongoing narrative of the soft landing and goldilocks economy.

A comparison of the feedback from Upstream (blue bars) and Downstream (orange bars) respondents suggest that, as would be expected this time of year, that Downstream firms are slightly busier than their Upstream counterparts. Downstream firms report non-statistically significant but still directionally faster rates of expansion in Inventory Levels and Inventory Costs, as well as slower growth in available Warehousing Capacity. They also report statistically faster rates of expansion in Warehousing Utilization (66.1 to 55.1) and Transportation Utilization (67.2 to 57.6). This suggests that Downstream retail supply chains are currently in full swing as they move inventory from warehouse racks to store shelves and (in the case of e-commerce firms) front porches. This provides additional evidence that we are indeed seeing traditional seasonality and logistics movements in Q4 of 2024.

Logistics activity may be somewhat uniform now, but that we see in our future predictions from Upstream (green bars) and Downstream respondents (purple bars) that may not be the case over the next 12 months. The most notable difference is in available Transportation Capacity, which Upstream firms project to contract at a rate of 46.3 while Downstream firms predict a surprisingly high rate of expansion at 69.4. Upstream firms predict a statistically significantly slower rate of expansion for Warehousing Capacity as well (55.8 to 66.7). The prediction of these levels of expansion by Downstream firms is up to this point an outlier in our data. We will continue to monitor this metric to determine whether this is a sign of new concern among retailers, or merely an outlier. Downstream predictions for Inventory Levels remain robust at 60.0 (to Upstream’s 64.2), so it does not seem that they are predicting capacity growth due to a significant slowdown in inventory sourcing. As might be expected given these dynamics, Upstream firms are predicting significantly greater expansion in the overall index (67.5) than their Downstream counterparts (60.2). This dynamic is similar to what was reported in October and both rates of expansion would indicate healthy growth in the overall logistics industry.