Imagine your warehouses packed with goods rushed in early this year to avoid anticipated tariffs, only to find market demand falling short of expectations. Capital remains tied up in stagnant inventory while storage costs continue to climb. This isn't hypothetical—it's the current reality facing the logistics industry.
The latest Logistics Managers' Index (LMI) report reveals that while the sector has expanded for two consecutive months, underlying risks from rising costs and warehouse capacity constraints pose significant challenges.
LMI Index: Growth Masking Deeper Concerns
May's LMI reading reached 59.4, up from April's 55.8—marking a 12.3% year-over-year increase from May 2023's 47.3. However, this growth comes with troubling indicators. Inventory turnover has slowed considerably compared to earlier this year, while inventory costs surged 2.8% to 78.4—the highest level since October 2022.
More concerning is the 26.8% gap between inventory costs and inventory levels, the third-largest disparity since the report's inception. This suggests substantial early-year inventory inflows now sit idle with high carrying costs. Warehouse data confirms this trend, with capacity dropping 5.4% to 50.0 and prices dipping 0.2% to 72.1, indicating critically limited available space.
Transportation Market: Excess Capacity Meets Weak Utilization
Transportation metrics present a mixed picture. Capacity edged down 0.5% to 54.7 while prices held steady at 50.0. Utilization fell 0.7% to 52.6—the lowest since November 2023, though still above contraction territory. These figures suggest adequate transport capacity exists, but weakening utilization reflects softening demand.
The report notes May's LMI shows stabilization after March's seven-month low (57.1) and February's near three-year peak (62.1). Whether this stability persists depends on macroeconomic conditions and policy developments.
Economic Uncertainty Clouds Outlook
The U.S. economy and logistics sector face heightened uncertainty and pessimism. First-quarter GDP declined 0.2% following Q4 2023's 2.4% growth—the first quarterly contraction in three years—though consumer resilience made the downturn less severe than expected.
Consumers express concerns about tariff uncertainty, high borrowing costs, and persistent inflation effects. Business leaders share this apprehension—the Conference Board's Q2 CEO confidence index plummeted to 34 from Q1's 60, representing the largest quarterly drop in over fifty years.
While stable consumer spending maintains strong employment (experts predict 150,000 May job gains), spending growth slowed to 0.2% in April from March's 0.7%. Despite 0.8% wage increases, savings rates rose 0.6%, suggesting consumers may have front-loaded major purchases (like vehicles) ahead of potential tariffs before adopting a wait-and-see approach.
Trade Policy: Navigating Unpredictable Waters
The report examines how shifting trade policies impact markets. With circumstances changing rapidly—like the May 30 announcement raising steel/aluminum tariffs from 25% to 50% effective July 4—firms struggle to establish long-term strategies.
Supply chains demonstrate resilience in adapting to trade regulations, but persistent uncertainty complicates strategic planning. The Q1 2025 inventory surge reflected shippers rushing imports ahead of potential punitive tariffs—paying higher costs now to avoid potentially steeper future expenses.
Three factors maintain shippers' cautious stance: elevated early-year inventories, 30-40% tariffs on Chinese imports (10% from most other countries), and skepticism that threatened 145% China tariffs will materialize—or remain permanent if implemented.
LMI Report: A Crucial Navigation Tool
As two tariff suspension measures approach July and August expirations, industry attention focuses on response strategies. The LMI report provides invaluable macro-level context, helping stakeholders navigate complex logistics challenges where trade policy remains paramount—but not the sole concern requiring vigilance in these uncertain times.