Chart of the Week: Logitsics Manager’s Index – Inventory Levels SONAR: LMI.INVL
The Logistics Manager’s Index (LMI) component measuring inventory levels was 50 in December, indicating that total inventories were essentially flat compared to November. This suggests that companies accurately forecasted demand for the holiday season. However, a closer look reveals a stark divergence between upstream and downstream inventory levels, suggesting significant freight movement opportunities in early 2025.
On the most recent Freightonomics podcast, Dr. Zac Rogers from Colorado State University highlighted the strong differences between upstream and downstream activity within the aggregate supply chain.
In this context “upstream” refers to the warehousing of finished goods not expected to be sold for an extended period. These facilities are typically located far from the end consumer. Major upstream warehousing hubs are found near port cities like Los Angeles (commonly referred to as the Inland Empire) and Savannah, GA. In recent years, cities like Phoenix, AZ, and Laredo, TX, have seen accelerated growth in such facilities due to available real estate and proximity to U.S. import gateways.
In contrast, downstream facilities, which are closer to end users, have expanded and evolved to handle higher throughput volumes with greater speed. These facilities are generally referred to as distribution or fulfillment centers.
Dr. Rogers noted that upstream facilities experienced moderate inventory growth in December, registering a 57.9 on the LMI. Readings above 50 indicate expansion, while those below 50 signify contraction. Conversely, downstream retailers recorded a surprising 33.9, suggesting a highly successful holiday shopping season for many companies.
The takeaway is that upstream firms may have over-ordered in response to concerns such as tariffs, while downstream firms possibly underestimated customer demand. As a result, many downstream firms are likely to spend early 2025 replenishing their inventories.
Well-Timed Cost Control?
It’s plausible that some retailers aimed to reduce inventories in response to rising warehousing costs. The warehouse pricing component of the LMI has never fallen into contraction since the index’s inception in 2016. Distribution and fulfillment centers are particularly expensive to operate.
However, this argument has a flaw: these facilities don’t cost less when they hold less inventory, and missing revenue opportunities due to insufficient stock is far more costly than warehousing goods. Additionally, shippers don’t appear to be scaling back their importing activity, which counters the cost-control theory.
The Inbound Ocean TEUs Volume Index (IOTI), which tracks container booking volumes for U.S. imports, has remained consistent with or slightly above 2024 levels. The slight increase in recent weeks is likely due to the earlier timing of the Lunar New Year holiday in China, compressing the ordering timeline compared to 2024.
Surface Transportation Boom?
For intermodal providers, the current trends suggest continued strength in the first half of 2025. Intermodal container demand has surged since last summer, driven by lower costs and longer order lead times for upstream warehouses.
Loaded international and domestic container volumes transported by rail out of Los Angeles were up approximately 20% year-over-year last week. However, truckload providers have not experienced a similar boost, particularly for long-haul freight. Tender volumes out of Los Angeles are slightly down year-over-year, despite the region’s ports handling the largest volume of U.S. container imports.
Truckload demand for freight moving less than 100 miles rose 13% in December, suggesting that shippers are relying on rail for long-distance transportation and trucks for shorter, final-leg deliveries.
On a positive note, the American consumer continues to spend, which benefits the transportation sector overall. While the gains are not evenly distributed, the truckload market remains in a state of transition. The loss of market share to intermodal transportation has helped reduce excess capacity, contributing to the first signs of long-term contract rate inflation since 2022.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
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