Logistics Managers Report Slower but Ongoing Capacity Contraction

The freight market tightened once more in January, according to the latest Logistics Managers’
Index (LMI), a monthly survey of supply chain managers.

The report’s transportation capacity index, which measures how much truck and freight space is
available, came in at 47.1. On the LMI scale, a reading below 50 means capacity is shrinking.

January marked the second straight month of contraction, though the pullback was not as sharp
as in December, when the index fell to 36.9, the steepest drop since October 2022, an indication
that the decline is slowing despite fewer trucks being available than there were late last year.

Large companies with 1,000 or more employees reported tighter capacity, with a reading of
41.5. Smaller firms, however, reported slight growth in capacity at 52.5. Retailers said capacity
was unchanged, while manufacturers and wholesalers reported contraction.

Trucking companies and third-party logistics providers have recently pointed to stricter
enforcement of driver-related regulations as one reason capacity is leaving the market.

They cited English-language proficiency requirements, limits on certain commercial driver’s
licenses, and closer scrutiny of electronic logging devices and driver training schools. Severe
winter storms also reduced available trucks during the month.

The report suggests the market may be stabilizing.

“Transportation Capacity contraction has slowed in each two-week period since early
December, suggesting that the market is leveling off after contracting quickly at the start of the
holiday shopping season,” the report said.

Capacity measured 44.1 in the first half of January but improved to 49.3 in the second half,
close to the break-even mark of 50.

Meanwhile, transportation utilization — which measures how heavily trucks are being used —
remained strong at 58.1, about the same as in December. Utilization jumped in the second half
of the month, likely because winter storms disrupted normal shipping patterns.

Freight rates continued to climb. The transportation prices index rose to 71.4, the fastest pace of
growth since April 2022, near the end of the pandemic-era freight boom. The report said some
of the increase may be tied to companies shifting freight from rail back to trucks as they return
to just-in-time inventory strategies.

Looking ahead, survey respondents expect tighter conditions to continue over the next year.
Their forecasts call for lower capacity and higher utilization and pricing — a significant shift after
more than three years of weak freight demand.