September Transportation Prices Surge as Capacity Tightens Further

Transportation prices surge as capacity tightens further in September

Transportation costs moved higher again in September as available freight capacity contracted for the 10th consecutive month, according to the latest Logistics Managers’ Index. The data points to a difficult operating environment for shippers and carriers, with transportation prices remaining near historic highs while warehouse space also became harder to secure.

The transportation prices index rose 2.7 points from August to 92.7. In the LMI’s diffusion-index format, readings above 50 indicate expansion, while readings below 50 indicate contraction. A price reading above 90 represents a highly inflationary environment. The index has reached at least 90 in five of the past six months.

For truck drivers and carriers, the pricing increase is occurring alongside a sharp decline in available capacity. The transportation capacity index fell 5.6 points to 34.4, representing a steep rate of contraction. The measure has indicated a shrinking market for 10 straight months.

Transportation utilization remained in expansion territory at 66.1, although its rate of growth slowed by 4.5 points from the previous month. Together, the capacity and utilization readings suggest that more freight is competing for a smaller pool of available trucks, helping keep pressure on rates.

The LMI said record diesel fuel prices and heightened regulatory enforcement continue to restrict truck capacity. Those conditions are contributing to the sustained strength in transportation prices and are limiting the flexibility of shippers trying to secure equipment.

Supply chain managers expect the transportation market to remain tight over the next year. Their forward-looking readings show transportation capacity at 37.9, utilization at 70.8 and prices at 86.1. Each measure points to continued pressure, although the expected price reading is below September’s level.

Retail inventories move higher

The overall Logistics Managers’ Index increased 3.6 points in September to 70.2. That was the second-highest reading in four years, trailing only June’s 71.1. The index also remained well above its long-term average of 61.8.

Inventory levels were one of the biggest drivers of the monthly increase, rising 6.1 points to 58.9. Inventory costs climbed 1.3 points to 79.9, indicating that holding goods continued to carry a substantial cost for supply chain operators.

The LMI said retail inventories remain concentrated at the wholesale level rather than having fully moved downstream to retailers. Upstream respondents, including manufacturers and wholesalers, recorded an inventory-level reading of 61.4, compared with 53.8 among downstream respondents, primarily retailers.

The Tuesday release attributed the pattern to a combination of late shipments tied to increased confidence in fourth-quarter consumer spending and a newer seasonal pattern in which goods are moved to retailers closer to mid-October.

It also said inventories may not have been built heavily during the summer because of tariff concerns. At the same time, consumer spending has remained strong despite inflation, prompting retailers to increase their stock levels. Companies had not yet completed their holiday inventory builds, according to the LMI.

Warehouse space tightens

Higher inventory levels placed additional pressure on warehouse space. The warehousing capacity index dropped 14.2 points to 39.3, moving into contraction territory. It was the fastest rate of contraction for warehouse capacity since March 2022.

The capacity squeeze was more pronounced among upstream companies, where much of the additional inventory is being held. Warehouse utilization rose 4.7 points to 64.3, while warehouse prices remained in robust expansion at 73.5. Warehouse prices did ease 1.5 points from August.

For trucking operations, tighter warehouse capacity can create additional scheduling challenges. More concentrated inventories may increase demand for short-term storage, transfers and replenishment moves while making pickup and delivery appointments more difficult to coordinate. The LMI data measures supply chain conditions broadly, rather than individual lane conditions, but it shows that pressure is building across both transportation and storage.

Total logistics costs reach highest level since 2022

Combined logistics costs, including inventory, warehousing and transportation, reached 246.1 in September, up 2.5 points from August. The reading was the highest since April 2022, when supply-driven inflation was elevated following the end of COVID-era demand distortions and the initial invasion of Ukraine.

The increase matters because higher transportation prices do not stand alone. Shippers are also dealing with rising inventory costs, fuller warehouses and less available capacity. Those costs can affect freight budgets, delivery planning and the timing of seasonal shipments.

The Logistics Managers’ Index is produced through a collaboration involving Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University and the University of Nevada, Reno, along with the Council of Supply Chain Management Professionals. Its September results show that the freight market remains constrained as retailers and suppliers continue preparing for the holiday season.