The Logistics Manager’s Index (LMI) for inventory levels stood at 50 in December, indicating that overall inventories remained stable from November. This stability suggests that companies effectively anticipated demand during the holiday season. However, a deeper analysis reveals a significant disparity between upstream and downstream inventory levels, signaling notable freight movement opportunities in early 2025.
On a recent episode of the Freightonomics podcast, Dr. Zac Rogers from Colorado State University emphasized the pronounced differences in activity across the aggregate supply chain.
In this context, “upstream” refers to the storage of finished goods that are not anticipated to be sold for an extended period. These warehouses tend to be situated far from the end consumer, with major hubs located near port cities like Los Angeles (often termed the Inland Empire) and Savannah, GA. Recently, cities such as Phoenix, AZ, and Laredo, TX, have experienced rapid growth in such warehousing facilities, facilitated by available real estate and proximity to U.S. import gateways.
Conversely, downstream facilities, which are closer to end users, have developed to manage higher throughput volumes more efficiently. These are generally known as distribution or fulfillment centers. Dr. Rogers noted that upstream facilities saw moderate inventory growth in December, marked by a LMI score of 57.9, indicating expansion. In comparison, downstream retailers recorded a surprising score of 33.9, highlighting a successful holiday season for many.
The implication is that upstream companies may have over-purchased in reaction to concerns like tariffs, while downstream firms likely underestimated customer demand, leading many downstream companies to focus on inventory replenishment in early 2025.
Strategic Cost Management?
Some retailers may have aimed to curb inventory levels in response to escalating warehousing costs. Notably, the warehouse pricing component of the LMI has never dipped into contraction since the index’s launch in 2016, reflecting high operational costs for distribution and fulfillment centers.
However, this cost management rationale has shortcomings: reduced inventory levels do not equate to lower operational costs, and the risk of lost revenue due to inadequate stock far outweighs the costs of warehousing. Furthermore, shippers do not seem to be reducing their import levels, which questions the validity of the cost-control argument.
The Inbound Ocean TEUs Volume Index (IOTI), tracking container booking volumes for U.S. imports, remains steady or slightly above 2024 levels. Recent slight increases are likely linked to the earlier onset of the Lunar New Year holiday in China, which has compressed the ordering timeline compared to 2024.
Growth for Intermodal Providers?
Current trends indicate that intermodal providers are likely to see continued strength in the first half of 2025. Demand for intermodal containers has surged since last summer, driven by decreased costs and extended order lead times for upstream warehouses.
