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Supply Chain Activity Accelerates As Companies Prepare For The Holidays

Higher-than-usual inventory growth has boosted supply chain activity for the first time since March.

A new report from the Logistics Managers’ Index shows an increase from 59.7 in August to 61.4 in September, according to BNN Bloomberg. The index has been steadily declining since reaching an all-time high of 76.2 in March. Any score above 50 indicates that the logistics industry is expanding, while a score below 50 means it is shrinking.

Cargo being processed in December 2020 at the Port of Los Angeles.

Analysts suspect the uptick is due to heightened demand for storage ahead of the holidays, which is driving up the cost of warehouse space. At the same time, more shipping capacity is pushing down transportation costs, indicating a shift in the power dynamic away from carriers and back toward shippers, per the report.

“Transportation continues its slump, while warehousing is chugging along at the same breakneck pace we have observed for much of this post-pandemic recovery period,” the report said. “Much of this confusion can be attributed to the high levels of inventory that continue to permeate global supply chains.” 

Warehouse capacity remains in the contraction zone, and more users are needing space, which means cost alleviation is unlikely to occur any time soon, the report said.

“Even if some warehousing space comes on line, respondents are pessimistic that it will be enough to take significant pressure off of price growth.”

Major supply chain producers were dealt another blow late last week when Hurricane Ian forced several major shipping ports in the Southeast to temporarily cease operations. 

Most of those ports have since reopened; however, the event caused widespread delays across carrier networks as cargo was diverted from Florida to other ports.

“When you think about how the ports and volumes are already shifting, when you start taking ports offline because of the hurricane, that just makes that line go somewhere else, or freight has to sit and wait,” Spencer Shute, principal consultant at supply chain consulting firm Proxima, told Bloomberg.