US logistics costs are climbing again, and the October survey of logistics managers points to tight capacity rather than a surge in freight volumes as the cause1, 4.
The Logistics Managers' Index (LMI) rose to 70.7 in October from 70.2 in September, its second-highest reading in four years behind June's 71.1, according to the report released on 3 November1. Readings above 50 indicate expansion, and readings above 70 indicate strong logistics activity1.
The detail matters more than the headline for anyone buying freight. Inventory costs reached 88.8, the highest since March 2022, and the aggregate logistics cost index rose to 257.5 on a scale of 0 to 300, also the highest since March 20221. The researchers said the combination "may foreshadow continued supply-driven inflation"1.
Storage and transport capacity are the pinch points
| LMI index | October | Change from September |
|---|---|---|
| Logistics Managers' Index | 70.7 | up 50 basis points2 |
| Inventory levels | 66.9 | up 8.0 points2 |
| Inventory costs | 88.8 | up 8.9 points2 |
| Warehousing capacity | 43.5 | decline slowed 4.2 points2 |
| Warehousing prices | 80.7 | up 7.2 points2 |
| Transportation capacity | 38.0 | contraction slowed 3.6 points2 |
| Transportation prices | 88.0 | expansion slowed 4.7 points2 |
| Aggregate logistics costs | 257.5 | up 11.4 points2 |
Inventories rose as retailers stocked for the holidays. The inventory levels index gained 8.0 points to 66.9, the fastest growth rate in four years, and the second half of October ran about 10 points above the first half2. The report said firms are "pulling inventories in as quickly as they can" after a year of cautious buying2.
That build met a network with little slack. Transportation capacity has contracted for 11 straight months and registered 38.0, against 54.5 a year earlier2, 5. Warehousing capacity stayed in contraction at 43.5, while warehouse prices jumped 7.2 points to 80.72. Transportation prices sat at 88.0, though the pace of expansion eased 4.7 points from September2.
The Institute for Supply Management's October manufacturing survey pointed the same way. Its supplier deliveries index, which rises when deliveries slow, registered 59.1 for an 11th month of slowing, and its prices index was 75.26. Respondents cited pricing volatility in 62% of negative comments and longer lead times in 41%6.
Capacity is leaving while volumes are flat
Supply is shrinking at the small end of the trucking market. Some 221 trucking companies have filed for bankruptcy so far this year, according to Bloomberg data, and about two-thirds of small carriers report revenue that is flat or down year on year7. Almost 40% of those operators said they expected to be out of trucking within six months or were unsure7.
Diesel is the main squeeze. US on-highway diesel averaged $6.292 a gallon on 2 November, down 6 cents on the week but up 69.2% from a year earlier3, 8. "Diesel rates and the trucker shortage are impacting costs beyond the raw material inputs to levels I have never seen," one food and beverage respondent told ISM6.
Freight volumes, though, are not booming. The Bureau of Transportation Statistics freight services index was 134.4 in August, down 3% from a year earlier4. A transportation equipment respondent told ISM that "underlying freight demand appears softer" and that truck tonnage is declining year on year6.
What carriers are asking for 2027
Knight-Swift Transportation, with roughly 70% of its truckload fleet on non-dedicated agreements, is targeting "at least double-digit" rate increases in annual negotiations that just began2. Broker and carrier data cited in the LMI show new truckload contracts being written 13.11% above the rates they replace5, and SONAR figures quoted by FreightWaves put recent renewals near 13%2.
Spot and contract rates are moving at different speeds. Spot truckload rates were up 41% year over year through October, while contract rates reset 10% to 12% higher depending on the index, according to Flock Freight chief commercial officer Chris Pickett9. US producer prices for long-distance truckload rose 4.6% in September from August and 17.9% from a year earlier, to 219.4, a 52-week high10.
Intermodal is no longer the cheap escape. Intermodal marketing companies and railroads are using bid negotiations to raise rates in 2027 annual agreements11, and rail executives want to lift intermodal contract rates for the first time in four years12.
What would signal relief
Diesel futures fell sharply on 2 November as traders weighed talks involving the US, Israel and Iran. Brent dropped 10.94%, West Texas Intermediate fell 7.36%, and December ultra low sulfur diesel settled at $4.4216 a gallon8. Fuel executives, though, warned in October that diesel may stay high into spring 2027 even if crude retreats. "If oil dropped today, that does not mean the price will go down," AMBEST chief executive Chuck Ryan said13.
On rates, Pickett expects contract prices to reach 15% to 20% above year-earlier levels by mid-2027 before any sequential decline, which he does not expect until early 20289. He also said a resolution in Iran or Ukraine that pulls WTI back to $70 to $80 a barrel could force another round of repricing9.
Three capacity numbers are worth tracking. Transportation capacity sits at 38.0, with surveyed managers expecting 49.3 in 12 months, still below the 50 expansion line2. Tender rejections averaged about 13.5% in October against 5.73% a year earlier5. And the freight index that measures actual volumes is down 3% year on year4. A fourth signal sits in the pace: October's contraction in transport capacity was 3.6 points slower than September's, and managers now see capacity close to neutral a year out2.