Supply chain capacity saw a rapid decline in July, as the transportation sector struggled to meet demand despite a cooling period following a stronger June. According to FreightWaves, the Logistics Managers’ Index (LMI) recorded a transportation capacity reading of 28.4 for the month, representing a contraction rate 2.4 percentage points faster than the prior month. This decline marks the second-fastest contraction in the 10-year history of the dataset, approaching the record low of 23.8 observed in September 2020.
Regulatory pressure remains a primary driver of this supply squeeze, as authorities focus on removing unsafe drivers from the road. Simultaneously, major publicly traded carriers are pivoting away from aggressive fleet expansion, opting instead to maximize existing asset efficiency. This shift was evident in recent second-quarter financial disclosures, particularly from Omaha-based Werner Enterprises (NASDAQ: WERN).
Werner reported that its one-way truckload (TL) fleet was reduced by 34% during the quarter. This reduction in scale, paired with internal restructuring that eliminated unprofitable accounts, led to a 28% year-over-year increase in revenue per truck per week, excluding fuel surcharges. Additional performance metrics for the carrier included a 16% increase in miles per truck and a 10% rise in revenue per total mile. Werner expects its rate per mile to grow by 10% to 13% year-over-year in the third quarter, helping the carrier improve its TL segment adjusted operating ratio by 270 basis points to 94.5%.
Key Transportation Metrics
| Metric | July Reading | Monthly Change |
|---|---|---|
| Transportation Capacity | 28.4 | -2.4 pts |
| Transportation Utilization | 65 | -9.7 pts |
| Transportation Prices | 86.9 | -5.5 pts |
Despite the reduction in utilization, which fell 9.7 points from June to 65, pricing growth remained elevated. The index for transportation prices hit 86.9, signaling continued expansionary pressure, albeit at a slightly slower pace than the previous month.
Why It Matters
This tightening cycle signals a departure from the pandemic-era reliance on sheer fleet volume toward a focus on surgical asset utilization. For shippers, this signifies that capacity constraints are no longer solely a function of macroeconomic demand, but a permanent feature of the regulatory and capital expenditure strategies adopted by major carriers. Moving forward, the industry should expect sustained upward pressure on contract rates as fleets remain lean, prioritizing margin improvement over market share expansion, effectively insulating major carriers against broader economic volatility while keeping transportation costs high for the end consumer.
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