Signs of a Freight Market Recovery?

In a notable shift, the monthly supply chain survey registered a neutral reading for transportation capacity in June, marking the first time in over two years that the index didn’t expand, according to Todd Maiden of FreightWaves.

Meanwhile, sentiment around transportation pricing signaled growth for a second consecutive month, indicating a potential end to the freight recession that has affected the industry since early 2022.

Lazer Logistics COO Phil Newsome noted several times during Q2 that the market was changing. “I’m not saying it’s the end [of the market recession], but things are changing for the better,” he said in early June. The survey’s numbers seem to bear out Newsome’s gut feeling.

Transportation Capacity and Pricing Insights

Maiden’s reporting noted that the Logistics Managers’ Index (LMI) displayed a 50 reading for transportation capacity in June, a stark change from March 2022, just before the onset of the freight recession. The capacity subindex dropped 7.3 percentage points from May, highlighting a significant change in the sector. The LMI, a diffusion index based on eight key supply chain components, indicates expansion with readings above 50 and contraction below 50.

Transportation pricing reached 61, up 3.2 points from the previous month and hitting its highest since June 2022. This subindex has shown expansion in five of the past six months, closing June 14.5 points higher than at the start of the month. Notably, the pricing subindex has outpaced the capacity subindex for two consecutive months, typically a signal of a growing freight market.

Freight Recession: Is the End in Sight?

“If this trend continues – as one might expect with peak season coming – then we would be comfortable calling the end of the freight recession that has gripped the industry since the Spring of 2022,” the LMI report stated. Although the recession is not officially over, these trends suggest a potential recovery.

A surge in ocean shipping spot rates has contributed to the overall increase in transportation pricing sentiment. However, the transportation utilization subindex fell by 3.5 points to 55.7, with upstream firms (manufacturers and wholesalers) recording a higher reading of 59.2 compared to downstream firms (retailers) at 46.2.

Looking ahead, the one-year-forward outlook for capacity is at 43.6, suggesting contraction, while expectations for pricing remain solidly in expansion territory at 79.8.

Inventory Levels and Costs

The overall LMI recorded a 55.3 reading for June, slightly lower than the previous month but remaining in expansion territory for the seventh consecutive month and 10 of the past 11 months. Inventory levels increased nearly one point to 47.4 but stayed in contraction territory, while inventory costs continued to expand at 63.6, although at a slower rate than in May.

Inventory levels slightly flipped into expansion territory at 51.7 in the second half of the month, with upstream firms logging a reading of 51.5 compared to downstream companies at 37. Inventory costs were 11 points higher in the second half of the month.

The report suggested that downstream firms likely maintain just-in-time inventories to keep costs down while upstream partners begin the buildup needed for peak season. Some shippers may also take inventory early to avoid peak season congestion, possibly exacerbated by labor negotiations at East and Gulf Coast ports.

Warehousing Capacity and Utilization

The subindex for warehousing capacity fell by 3 points to 52.6 sequentially and was 11 points lower year over year. As inventory metrics accelerated in late June, warehouse capacity declined to 48.3.

Warehouse utilization dropped 11.4 points from May to 52.6, nearing an all-time low. Upstream companies recorded a reading 11 points higher than downstream firms. Warehouse pricing remained essentially unchanged at 64.5, with a similar spread between upstream and downstream respondents.

Cautiously Optimistic Outlook

While the freight recession is not officially over, the recent trends in transportation pricing and capacity suggest the beginnings of a recovery. The LMI report, a collaboration among several universities and the Council of Supply Chain Management Professionals, indicates a cautiously optimistic outlook for the freight market as it approaches peak season.