ITS Logistics’ June ITS Supply Chain Report highlights the cost-driven factors behind the Logistics Managers’ Index (LMI), showcasing signs of expansion. It also highlights the current container volumes at several ports, which are experiencing the steepest decline since the COVID-19 era, while transportation capacity remains in expansion territory.
However, this does not alleviate concerns about a potential tightening in the transportation sector. Lastly, tensions with Iran could drive up oil prices, producing further strain on the trucking market as well as on consumers.
“The Logistics Managers’ Index saw its second consecutive month of growth, driven primarily by escalating costs,” says Josh Allen, chief commercial officer at ITS Logistics. “Tangentially, the Transportation Capacity Index decreased, falling below 2023 and 2024 levels for what should be a period of increasing demand for trucking. Similarly, van and reefer rates remain flat as we move into the height of retail season.”
Key takeaways:
· According to the most recent LMI report, the index rose to 59.4, indicating expansion for the second consecutive month. However, this growth is being driven by surging inventory costs, currently at 78.4, rather than actual movement. This is the highest they’ve been since October 2022, during a period when firms were facing challenges due to the end of the inventory buildup that resulted from the COVID-19 pandemic. As inventory becomes more expensive to hold and less mobile, it is leading to potential concerns related to overstocked warehouses and declining throughput. In all, the tension involving rising costs and stagnant flows further highlights inefficiencies in the supply chain velocity.
· In addition, container volumes at the Top 10 U.S. ports decreased by 10.7% in May, with West Coast ports being the most impacted. The Long Beach Port witnessed a 22.4% decrease, followed by the Port of Los Angeles with an 18.4% decline. The Port of Tacoma experienced a 25.6% decline, and collectively, the ports lost more than 170,000 TEUs. This marked the worst month-over-month volume drop since 2020, reflecting a sharp correction in import demand following the April frontloading, as well as the impact of new tariffs and the expiration of the de minimis exemption.
· In May, the U.S. economy maintained steady momentum, though it faced headwinds from demographic shifts, inflation pressures, and global uncertainties. The economy also showed moderate growth, with GDP expanding at an annualized rate of about 1.7% to 2% in the second quarter. Consumer spending remained steady, albeit cautious, amid concerns about inflation. This all occurred while inflation continued to ease gradually, with core inflation near 3%.
· Furthermore, escalation of geopolitical tensions — especially involving Iran — has created an opportunity for disruption concerning the oil flow via the Strait of Hormuz, pushing Brent crude oil sharply higher. A surge in oil prices could trigger stagflation. All of these supply chain disruptions are occurring as the U.S. economy enters summer at a precarious juncture, with strong policy headwinds from tariffs and fiscal strains colliding with deeper structural challenges in the job market, demographic shifts, and the aforementioned growing geopolitical risks.
“Overall, U.S. import volumes declined 9.7% month-over-month (MoM),” adds Allen. “The observed drop-off due to import slowdown was a direct result of the impact of the 145% U.S. tariff on Chinese imports. As it pertains to transportation capacity, the current LMI metrics strongly suggest that while transportation capacity is still in expansion territory, the downward trend and disparities between upstream and downstream capacities are resulting in industry professionals questioning whether it is a sign for the potential reality of a tightening for the transportation sector.”
