North American supply chains show signs of softening as inventory growth slows: LMI report

The North American supply chain sector experienced a notable cooling in March, with slowing cost expansion and a potential freight inversion indicating a market shift, according to the latest Logistics Managers’ Index (LMI).

The LMI — which tracks logistics activity across warehousing, transportation and inventory — dropped to 57.1 in March, down from February’s 62.8. This represents the third-largest single-month decline in the index’s history, reflecting a broad deceleration across seven of the eight measured components.

While all metrics remained in expansion territory, the slower pace highlights growing uncertainty, particularly around transportation pricing and inventory levels.

“There are strong signals that the inventory buildup which characterized the first quarter of 2025 is beginning to level off,” the report states, with analysts noting that future growth expectations are also softening. Respondents forecast a 12-month forward-looking LMI of 60.6 — down from February’s 66.2.

One of the clearest indicators of change lies in transportation. Transportation prices dropped 9.1 points to 56.4 in March, their second consecutive sharp decline, with future prices expected to fall even further to 60.0. At the same time, transportation capacity ticked up slightly to 53.6, while Utilization fell to 54.0 — the lowest level recorded in the past 12 months.

Later in March, the report observed that transportation capacity began expanding faster than transportation prices, creating what is known as a “freight inversion” — a potential early signal of a freight recession.

This change came amid a surge in flatbed freight movement in early March, driven by pre-emptive imports ahead of anticipated tariffs, particularly on bulky goods like Canadian lumber. These pull-forwards were visible in increased international intermodal volumes, with exports entering the U.S. from Canada and Mexico.

Inventory dynamics were also shifting. Inventory levels came in at 61.2, down from February’s 64.8, though still well above 2024 levels. The report highlights that much of the current growth is concentrated downstream, with retailers increasing stock levels more aggressively than upstream suppliers — reversing February’s pattern.

This downstream buildup is likely tied to tariff fears and shifting stocking strategies, the report suggests, with retailers opting to hold more inventory in early 2025 despite having operated leaner throughout 2024.

Inventory costs remain high at 70.6 — a level the report defines as “significant expansion” — although this is down from February’s 77.3. Expectations are for these costs to remain elevated through the year.

Warehousing capacity showed mixed signals. The overall reading rose to 52.3, suggesting slight expansion, but future expectations show a contraction at 45.5. Downstream firms reported tighter conditions (47.9) compared to upstream (53.9), with similar trends reflected in small firms seeing more capacity than large ones.

“Retailers tend to store inventory in higher-cost locations for faster delivery, which likely explains the divergence in warehousing cost expectations,” the report notes. Downstream firms predicted future warehousing prices to expand at 81.3, compared to 61.4 upstream.

Small businesses appear to be leading the inventory buildup. After lagging behind in 2023 and early 2024, smaller firms now report higher inventory levels and greater warehousing capacity than large firms. Analysts suggest this makes them a potential bellwether for broader economic shifts, particularly if credit access and costs continue to strain the sector.

Although short-term inventory pressure remains high, the LMI’s forward-looking data suggests a gradual return to leaner, just-in-time inventory strategies. Whether this trend is driven by improving supply chain efficiency or softening consumer demand remains to be seen.

Still, the March report paints a picture of a supply chain in transition, with declining cost pressures and mixed signals from transportation and warehousing indicating the sector may be entering a new phase of post-pandemic normalization.

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