According to a report from Yahoo Finance, the October release of the Logistics Managers’ Index (LMI) shows that for the first time since July 2024, shippers have reduced inventories rather than expanded them. The LMI is a diffusion index based on monthly surveys of supply chain managers, where values above 50 indicate expansion and values below 50 indicate contraction.
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Inventory costs and turnaround management strategy
Inventory costs continue to rise at near pandemic-era levels, pushing shippers toward leaner supply chains. Over the past year, shippers have been ordering a little more than necessary, with a particularly active replenishment season last winter reflected in February’s reading of 64.8. Concerns about tariffs and service outages have encouraged a “just-in-case” demand cadence over the past two years.
The latest reading indicates a potential long-term shift in inventory management practices toward a “just-in-time” strategy. According to Dr. Zach Rogers, one of the LMI’s co-authors, the continued stability of inventory costs indicates that companies are still holding relatively high levels of commodities but are now seeking to draw down large reserves built up earlier in the year. This suggests that increased or unexpected demand is not the main driver of the recent inventory decline.
Import reservations and economic risks
The Inbound Ocean TEUs index, which tracks container import bookings into the United States, underperformed the past two years over the past three months. They also did not show any sharp increases in response to lower inventory levels, suggesting that companies are comfortable with continuing to reduce their inventory levels.
High warehouse prices and higher holding costs incentivize companies to hold less inventory, a risky choice in an unpredictable economic environment. While most indicators do not currently point to strong growth in demand, demand trends have proven difficult to predict historically.
Impact on transportation markets
Companies that fail to provide products when customers are ready to buy risk losing not just one sale, but long-term customers, given today’s abundance of choices. When inventories are thin, a modest increase in demand can lead to a rapid increase in replenishment orders.
Rail carriers and intermodal carriers have greatly benefited from the “just in case” inventory strategy, as longer order wait times have increased the need for local freight movement. Trucking, on the other hand, benefits from a “just-in-time” strategy, creating a greater urgency for faster, more direct shipping with fewer deliveries and exchanges.
Source: Market intelligence platform IndexBox
