Expansion in the supply chain is slowing as inventory growth weakens, suggesting that the inflationary effects of the current tariff and trade environment could become more apparent later this year, according to the August Logistics Managers Index (LMI) from researchers at Florida Atlantic University (FAU), Arizona State University, Colorado State University, Rutgers University, and the University of Nevada, Reno.
“This month’s logistics cost pressures and dynamics echo what most consumers feel: the cost of goods has been increasing, which is largely driven by the cost to hold and move them throughout the retail network,” says Steven Carnovale, supply chain expert and associate dean of graduate programs at FAU’s College of Business.
Key takeaways:
· Several signals along the global supply chain suggest that costs are rising even as the volume of goods moving through it expands more slowly. Inventory levels fell 2.2 points to 52.8, while manufacturers and suppliers reported a slight contraction to 49 points. Despite the slowdown in inventory growth, inventory costs rose to 78.6, while warehousing prices remained elevated at 75.
· Looking ahead, LMI respondents expect the logistics sector to continue expanding over the next year, but at a slower pace.
· The overall LMI is projected to reach 69.6, down from July’s forecast of 70.5. At the same time, respondents expect logistics costs to remain elevated, with warehousing prices projected to expand to 79.2 and transportation prices at 86.1. Transportation capacity is expected to remain in contraction to 43, suggesting that cost pressures may persist even as overall logistics activity continues to grow.
“Geopolitical conflicts are driving input costs for fuel and the related components needed for modern society, such as fertilizer, which is partially driving the predicted increases in costs in the logistics sector,” Carnovale says. As these cost pressures rise and inflation continues to increase, the elevated levels of logistics costs will likely remain high.”
