Logistics activity is experiencing a slowdown due to the seasonal wind-down in inventory levels, which dropped (-6.1) to 50 or “no change.” What’s more, inventory levels actually increased, reading in at 57.9, for upstream firms like manufacturers, wholesalers, and third-party logistics (3PL) providers. Conversely, downstream retailers are reporting significant contractions in inventory levels at 33.9, which is what should be happening in December during the holiday shopping season, according to the LMI report, compiled by Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University, and the University of Nevada, Reno, in conjunction with the Council of Supply Chain Management Professionals (CSCMP).
Plus, a mid-December import spike is partially explained by firms attempting to avoid incoming tariffs. Although overall inventory levels are down (-6.1) to “no change” at 50, upstream and downstream firms reported totally different numbers. Upstream firms saw growth at 57.9, as evidenced by Indian and Chinese manufacturers increasing their orders of raw materials in November 2024 in anticipation of an increase in orders from U.S. customers. Downstream firms reported steep contraction in inventory levels at 33.9, consistent with reports of strong holiday sales for retailers.
Key takeaways:
- The reduction in inventory levels also led to a drop in the rate of growth for warehousing capacity (-7.1) to 61.6. Interestingly, transportation prices are up (+3.0) to 66.8, which is the fastest rate of expansion for this metric since April 2022.
- The other five metrics, including all three warehousing metrics, were steadier from November to December. Warehousing continues its strong run, with warehousing utilization (+2.8) and warehousing prices (-0.8) reading in at 61.7 and 68.0 respectively, signaling strong rates of expansion.
- This is the second consecutive year the index has been up over 20% annually. Much of this was due to rate cuts, the winddown of inflation, consumer spending, and enthusiasm around artificial intelligence (AI)
- Despite all the good news, inflation continues to be tricky. The U.S. personal consumption expenditures (PCE) index was up 2.4% in November, which is slightly above the Fed’s target of 2%. While this is nowhere near the staggering rates of inflation from 2022, the stickiness of price increases is likely a major contributor (along with strong consumer spending) to the Fed’s prediction that they would only consider cutting rates twice in 2025.
- The high levels of activity will not be a major departure for the ports. The Port of Long Beach processed 9.6 million TEUs in 2024, breaking the previous record set in 2021. This was up approximately 20% year-over-year, highlighting the difference between consumer behavior and corporate inventory strategies from 2023-2024. Port of Oakland also saw an uptick in imports to the tune of 13.1%, and exports up 8.5%, in November from the year prior.
- Labor disputes could present a challenge for this anticipated inventory buildup. Contract negotiations between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) are set to resume Jan. 7.
- The Ports of New York and New Jersey are also engaging in separates negotiation with terminal operators in an attempt to get a larger cut of the revenue generated by the increasing volume of goods passing through East Coast ports. The New York and New Jersey ports processed 6.6 million containers in the first nine months of 2024, representing an increase of 13.8% year-over-year.
- The issues in the Red Sea have caused revenues at the Suez Canal to drop by 60% in 2024. Canal authorities are attempting to dredge deeper in an effort to facilitate two-way traffic, which would allow the canal to have throughput and make it less susceptible to disruptions like it experienced in 2021.
- Another challenge to keep an eye on for warehousing in 2025 is labor, from Teamsters‘ Union strikes to the vast adoption of robotics. And, as more plants have been re- or near-shored, manufacturers have faced a shortage of workers, with an average of 100,000 positions for high-skilled manufacturing jobs going unfilled in the last few months.
“Respondents were asked to predict movement in the overall LMI and individual metrics 12 months from now. Respondents remained optimistic in December, predicting expansion in the overall index at a rate of 65.8, up (+2.2) from November’s future prediction of 63.6. The factors leading to the expansion are notably different in a few places when compared to November’s future predictions. The first of these differences revolve around inventories. Inventory levels are up (+7.5) to 70.3, which would represent a very significant rate of growth and a sharp turn away from the just-in-time policies that have characterize the last two years. Relatedly, warehousing utilization is expected to increase at a rate of 69.6 (+3.3) and warehousing prices are predicted to expand at the robust rate of 75 (+1.1), which would be the fastest rate of growth since January 2023 when many firms were still flush with excess inventory,” the report says. “Transportation prices are expected to increase at a rate of 77. This is down (-3.9) from November’s future prediction but would still represent significant rates of expansion. Despite this predicted expansion, transportation capacity is expected to hold steady at 50, suggesting that there will be enough capacity to soak up demand. It is interesting that firms are now predicting such significant increases in inventory levels, it will be critical to keep an eye on these movements in 2025 as inventories are almost always the canary in the coalmine with movements in both the logistics and overall economy.”
