Supply Chain Monthly

Logistics Managers Index | March 2020 | The Impact of COVID-19 on the Supply Chain

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While much of the global economy has been negatively impacted by the COVID-19 outbreak and the associated fallout, according to the March 2020 Logistics Managers’ Index, the logistics (and particularly transportation) industry appear to be holding strong. The overall LMI score of 58.9 is the highest level we have read in a year. This is up significantly from February when it registered at an all-time low of 52.6. This breaks a long-running trend as prior to this reading, the lowest eleven scores in the history of the index have all occurred within the last eleven months. This breaks a two-year trend of near-constant decreases in the overall index.

This growth has been driven primarily by increases in Transportation Prices (up 16.54 to 65.5), and Inventory Levels (up 7.0 points to 55.4), both of these metrics had displayed contraction in February. Relatedly, both Warehousing and Transportation Capacity are down significantly, having dropped 17.0 points and 8.12 points respectively. The lack of capacity and increase in Transportation Prices is likely due the inability of retailers to keep staple goods on the shelves, and suppliers rushing to replenish them.

However, we also find evidence that this spike in activity may not last. With the initial rush to procure goods subsiding and 10-15 million Americans newly unemployed, consumer spending will likely decrease. This could lead to a “bull-whip effect,” and cause both retailers and their suppliers to become over-inventoried. As presented in the table below comparing data from the last week of March to the first three weeks, there is evidence of a downward shift.

The Transportation Utilization is significantly lower and available Warehouse Capacity is significantly higher, with some effects on both Transportation Prices and Inventory Cost. This suggests that the spike in consumer spending is subsiding. The logistics industry is currently one of the few bright spots in the economy, whether or not this continues, or subsides due to the worsening economy remains to be seen.