Strong demand for warehousing and transportation continues, but inflation and rising fuel costs may cause market shift in the coming months, researchers say.
Victoria Kickham, an editor at large for Supply Chain Quarterly, started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for Supply Chain Quarterly's sister publication, DC Velocity.
The logistics economy expanded in March, continuing the industry’s strong growth run, but rising fuel prices and near-record level inflation may signal a shift in the coming months, according to the monthly Logistics Manager’s Index (LMI) report, released today.
The March LMI was up one percentage point compared to February, reaching an all-time high of 76.2 and maintaining a nearly two-year streak of above-average growth. An LMI reading above 50 indicates growth in the industry, and a reading below 50 indicates contraction. The LMI has remained above the 60-point mark since June of 2020 and has been above 70 since February 2021.
High costs and tight capacity in warehousing and transportation are fueling the strong pace of growth. Warehousing prices hit a record high during the month and capacity hit a record low, reflecting continued red-hot demand for warehouse space. Inventory costs also continued to climb, surpassing February’s record levels.
“Continued inventory congestion has driven inventory costs, warehousing prices, and overall aggregate logistics costs to all-time high levels,” the LMI researchers wrote. “This is putting even more pressure on already-constrained capacity.”
Transportation prices were up slightly compared to February, and transportation capacity continued to contract overall, indicating an ongoing imbalance in freight markets—but the LMI researchers said there were signs conditions may be easing in some markets. Upstream firms–including carriers, third-party logistics services (3PL) providers, and wholesalers–reported an increase in capacity during the second half of the month, potentially indicating a coming shift in the market, according to LMI researcher Zac Rogers, assistant professor of supply chain management at Colorado State University.
“It’s interesting to see how capacity loosened up in the second half of the month,” Rogers said, pointing to a transportation capacity reading of 55 for upstream firms during the last two weeks of March. “Certainly, we’re seeing some kind of shift.”
Rising fuel prices are largely the reason. A gallon of diesel fuel reached a record high average of $5.25 in mid-March, and the price of a gallon of regular gasoline surpassed $4 for the first time since 2008. Combined with near-record high U.S. inflation rates and a changing consumer economy, those factors may alter the logistics landscape later this year.
“The high costs of fuel may end up being the thing that finally slows down the runaway transportation market,” according to the LMI report. “The dramatic increase in fuel prices … seem to have put a relative damper on the previously insatiable freight demand. Consumers had been willing to absorb some increase in costs through 2021. However, the rate of inflation through the first quarter of 2022 is at such a rapid pace, the stimulus money that buoyed spending last year is largely gone, and consumer spending has shifted increasingly away from goods and towards services.”
The U.S. inflation rate reached 7.9% in February, the highest rate since January 1982 (8.4%).
The changing landscape may lead to a rebalancing of the freight market as the year unfolds, Rogers said.
“We may see some moderation in trucking,” he explained. “Prices are still going to be up, capacity will be tight, but not impossibly so [as we’ve seen recently].”
Other industry watchers agree that the pain of high costs is here for the long term. Brett Wetzel, a senior director at transportation management solutions firm Breakthrough , says it’s increasingly difficult for shippers and carriers to manage the current fuel market volatility in particular–a factor that drives up costs throughout the channel. Fuel is the second-largest operating cost for trucking companies–after driver costs—and when those costs rise considerably, they get passed along to shippers when goods are moved, he said.
“Rapid volatility adds cost to both [parties], and it creates a big challenge,” Wetzel said. “We expect continued pressure through 2022. We may see some relief in 2023, but we still won’t be back to 2021 [levels].”
Respondents to the March LMI report predicted that transportation prices, warehousing prices, and inventory costs will all continue to rise over the next 12 months.
The LMI tracks logistics industry growth overall and across eight areas: inventory levels and costs; warehousing capacity, utilization, and prices; and transportation capacity, utilization, and prices. The report is released monthly by researchers from Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.