If you thought 2020 would go quietly into that good night, you haven’t been paying much attention. Many people have posted on social media that they are ready for this year to end, as if the problems of the year created by the COVID-19 pandemic will suddenly disappear with the turning of the calendar page. One headache that appears to be staying with us at least into early 2021 will be the supply chain bottlenecks driven by capacity crunches in all transportation modes and now warehousing.
The Logistics Managers’ Index (LMI) measures eight components of transportation and warehousing. Like its cousin the Purchasing Managers’ Index (PMI), which is primarily used to measure manufacturing supply chain activity, a value above 50 indicates expansion while values below 50 indicate contraction.
The November LMI value for warehousing capacity hit an all-time low of 38 — the strongest contraction since the index was created in 2016. What may be more important than the fact warehousing space has become extremely rare in the second half of the year is the dramatic shift from where it was prior to the pandemic. In February, the warehousing capacity figure stood at 60, indicating there was a strong expansion in space.
In an interview with Dr. Zac Rogers, one of the contributors to the LMI, on this week’s Freightonomics podcast, talks about how unusual it is to see this level of volatility in the warehousing space due to the longer purchasing cycles.
The pandemic has accelerated many supply chain managers’ plans for shifting to a more e-commerce friendly distribution network that focuses on smaller fulfillment centers closer to the end user versus the traditional large warehouse positioned farther away from population centers.
With import volumes breaking records in Southern California, there is little sign that freight volumes are going to slow heading into the new year. Looking at customs shipments clearing the ports, volumes are on par with what we saw in the traditional “peak season” for import volumes in August and September.
In America, most people take time off to be with their families and many operations even shut down for the week between Christmas and New Year’s. Not only will trucking capacity decline, but there will be fewer people available to load and unload the freight. This will lead to freight piling up around the ports and docks with less capacity available to move or store it. The result could mean shippers and carriers will have a glut of freight to move to start the new year.
Add to the mix record returns are expected in January, thanks to the increase in online orders this holiday season. Traditionally returns are put into warehouses for long periods of time and moved only when other priorities are covered and transportation costs are lower. With warehouse space being limited, companies will be forced to deal with this freight sooner than normal.
Chinese New Year is on Feb. 12 in 2021. Traditionally, shippers place orders in front of this date in order to maintain inventory through the period of no production, which lasts from four to six weeks. Full warehouses may force that freight onto a truck sooner than normal as well.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
SONAR aggregates data from hundreds of sources, presenting the data in…