The December 2024 Logistics Managers Index (LMI) came in at 57.3, showing a slight dip from the previous month but still indicating growth within the logistics sector. At Gain Consulting, we believe that the sweet spot for the macroeconomy occurs when the LMI is in the high 50s—signifying a steady growth trajectory without the disruptive forces of overly rapid expansion. This consistency further reinforces our view that the logistics industry has been expanding at a sustainable pace, which bodes well for long-term stability.
However, there are underlying concerns that could affect the sector's stability. One of the primary sources of anxiety is the potential for tariffs, with global supply chains already feeling the weight of these uncertainties. The political landscape appears unpredictable, and while we hope that the new administration will refrain from creating major disruptions to supply chains, the fear of tariffs remains palpable. Supply chain professionals are particularly wary, given the historical ineffectiveness of trade wars. Though trade wars have never proven beneficial for any country, the threat of them still looms large.
That said, supply chain professionals are resilient and adept at adapting to disruptions. Those working in the "supply chain trenches" continue to demonstrate their ability to navigate these challenges. For now, we remain hopeful that the threatened tariffs are merely a negotiating tactic and not a reality that will negatively affect global supply chains.
Transportation Prices and Capacity: A Tightening Market
One of the most significant findings in the December LMI report is the notable increase in Transportation Price growth, which rose by 3.0 points to 66.8. This marks the fastest rate of growth since April 2022, highlighting the continued strong demand for freight and the pressures on transportation prices. The 13.7-point spread between Transportation Prices and Transportation Capacity is the highest since April 2022, signaling that prices are outpacing capacity.
Despite this, Transportation Capacity remains in positive territory, with a slight increase of 0.6 points to 53.2. It’s important to note that Transportation Capacity has not dipped below 50.0 since March 2022, when the freight recession began. The high levels of capacity built during 2020-2021 have played a crucial role in maintaining this stability. However, there is an expectation of mild contraction in the upcoming months, with upstream respondents predicting a dip to 48.8. Downstream respondents are slightly more optimistic, expecting mild expansion at 53.2.
This tightening in the freight market is evident in the rising tender rejection rates. In late December, FreightWaves’ tender rejection index briefly went into double digits for the first time in over two years as carriers scrambled to meet holiday demands. While it will be interesting to see how these rejection rates trend in January, they clearly signal the continued strain on the transportation system.
Transportation Utilization and Future Trends
Transportation Utilization has also remained stable, holding at 60.5. Upstream firms predict a much higher rate of expansion for Transportation Utilization at 72.5, compared to a more modest 56.5 predicted by downstream firms. This gap points to differing expectations about future freight demand across the supply chain.
Looking forward, it’s important to keep an eye on transportation costs. Diesel fuel prices have risen slightly by $0.027 per gallon compared to the previous week, but they remain significantly lower than last year, down by $0.373 per gallon. This ongoing trend of lower fuel costs, driven by factors such as electrification, fracking, and increased U.S. energy production, may keep fuel prices low into 2025. Crude oil prices are currently hovering around $73 per barrel, an affordable level but one that’s being artificially supported by OPEC+ production cuts.
On the other hand, the push to move inventories ahead of the Chinese New Year is causing some shipping rates to spike. In the last week of December, container prices from Asia to the U.S. West Coast increased by 8%, and carriers expect trans-Pacific spot rates to rise significantly in January. Airfreight costs are also anticipated to climb, particularly for shipments from Asia to Europe. The key question for the coming months will be whether costs rise or fall post-Lunar New Year. If tariffs are enacted, the market may slow down, and inventories may build up. On the other hand, if tariffs are delayed or reduced, leaner inventories may continue to be the norm, leading to potentially more frequent shipments and higher transportation prices.
Conclusion: Navigating an Uncertain Future
The logistics industry in December 2024 reflects a mixed but steady picture. While there are concerns about potential tariffs and the unpredictability of political leadership, the industry continues to grow at a sustainable pace, with transportation prices and utilization pointing to ongoing demand. Supply chain professionals remain resilient, and we expect this resilience to carry the industry through any disruptions that may arise.
At Gain Consulting, we are committed to helping businesses navigate the complexities of global supply chains, ensuring they stay ahead of market trends and disruptions. As the logistics landscape continues to evolve, we’ll be here to provide the strategic insights and solutions necessary for sustained success.
Stay tuned for further updates on the logistics sector and how it impacts your business.
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