Tighter inventories could boost trucking demand

Chart of the Week:  Logistics Managers’ Index – Inventory Levels, Inventory Costs SONAR: LMI.INVL, LMI.INVC

The October release of the Logistics Managers’ Index (LMI) shows that, for the first time since July 2024, shippers reduced inventories rather than expanding them. Inventory costs (LMI.INVC) continue to rise at near pandemic-era levels, pushing shippers toward leaner supply chains — and potentially ones that require greater responsiveness from transportation providers.

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.

Over the past year, shippers have been ordering slightly more than necessary, with a particularly active replenishment season last winter — reflected in a February reading of 64.8. Tariff concerns and service disruptions have encouraged a “just-in-case” ordering cadence over the past two years.

The latest reading signals a potential long-term shift in inventory management practices toward a more “just-in-time” strategy, which could prove more favorable for the truckload sector.

According to Dr. Zac Rogers, one of the LMI’s co-authors, on this past week’s Freightonomics podcast, the continued stickiness of inventory costs suggests that businesses are still holding relatively high levels of goods in their warehouses but are now seeking to draw down the large buffers built earlier in the year. This indicates that increased or unexpected demand is not the primary driver of the recent inventory decline.

The Inbound Ocean TEUs Index (IOTI) — which tracks bookings of container imports into the U.S. — has underperformed the previous two years over the past three months. It also hasn’t shown any sharp upticks in response to declining inventory levels, suggesting that companies are comfortable continuing to reduce their stock levels.

Rising warehouse prices and higher holding costs are incentivizing companies to keep less inventory — a risky choice in an unpredictable economic environment. While most indicators do not currently point to strong demand growth, demand trends have proven difficult to predict historically.

What this means for transportation markets

Companies that fail to have products available when customers are ready to buy risk losing not just a single sale but long-term customers, given today’s abundance of options. When inventories are lean, even a modest increase in demand can trigger a rapid surge in replenishment orders.

Rail and intermodal carriers have largely benefited from the “just-in-case” inventory strategy, as longer order lead times have increased the need for domestic freight movement. Trucking, on the other hand, benefits from the “just-in-time” strategy, which creates greater urgency for faster, more direct shipping with fewer handoffs and interchanges.

Carrier networks have been adjusting to lower freight volumes out of Southern California — tender volumes are down more than 30% year-over-year — meaning that any unexpected increase in demand could have an inflationary effect on spot rates.

Rates from Los Angeles to New Jersey are down 11% year-over-year but up roughly 10% since June. Rates overall have not fallen as quickly as demand might suggest — a trend seen across the broader U.S. market.

Leaner inventories add another factor to the growing list of reasons to expect increased volatility in the trucking market in the coming months — though this volatility is driven more by fluctuations in demand than by shifts in capacity.
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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