December 2024 Logistics Managers’ Index

Results Overview
The LMI score is a combination of eight unique components that make up the logistics industry, including: inventory levels and costs, warehousing capacity, utilization, and prices, and transportation capacity, utilization, and prices. The LMI is calculated using a diffusion index, in which any reading above 50.0 indicates that logistics is expanding; a reading below 50.0 is indicative of a shrinking logistics industry. The latest results of the LMI summarize the responses of supply chain professionals collected in November 2024.

The LMI read in at 57.3 in December, down (-1.1) from November’s reading of 58.4. As discussed above, this was largely due to seasonal drawdowns in Inventory Levels, and the associated costs of holding them, at the retail level. The difference in the overall index for Downstream retailers and their Upstream counterparts was quite pronounced in December, with Downstream firms registering only very mild contraction at 51.9 compared to the statistically significantly more robust expansion of 60.3 for Upstream firms. This is the reverse of the dynamic we observed in October when it was Downstream firms reporting more logistics activity in an attempt to get things in place for the holiday season.

Retailers were clearly correct in their bet to stock on goods ahead of the holiday season. Holiday sales from November until Christmas Eve were up 3.8% year-over-year according to Mastercard. This was largely driven by a 6.7% increase in ecommerce sales, although in-person spending was up 2.9% as well. The increase in spending came despite the shorter holiday season due to the late Thanksgiving. The NRF estimates that U.S. shoppers spent just short of a trillion dollars in November and December, making it the busiest holiday season of all time[1]. It was also a happy holiday season for investors. The S&P 500 ended 2024 up 23% on the year. 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 AI[2]. This is a continuation of the trend we have seen all year. The strength of the U.S. economy relative to the rest of the world has led to the dollar being much stronger than other currencies around the world. The dollar may become even stronger given recent comments by the Fed on needing to wait and see ahead of further cuts to the interest rate. This trend significantly benefits U.S. importers, but does make exports slower[3]. Some of these concerns may be reflected in the marginally statistically significant differences in future predictions for respondents. Upstream firms continue to predict slightly more robust rates of growth at 67.8, than their Downstream counterparts who are predicting slightly slower (although still strong growth at 62.0.

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[4]. Those issues pale in comparison to the economic conditions abroad. The U.K. economy has stagnated as inflation jumped back up in late 2024. Germany, France, and Canada’s governments will all be dealing with elections as economic conditions in those countries have made their governing coalitions deeply unpopular[5].

The mid-December import spike is partially explained by firms attempting to avoid incoming tariffs. A survey by GEP and S&P Market Intelligence shows that buying activity by North American Manufacturers hit its highest level in over a year. Due to the uncertainty of when tariffs might happen or how large they may be, many of these manufacturers are focused on critical items, and are taking a “wait and see approach” for everything else[6]. Although overall Inventory Levels are down (-6.1) to “no change” at 50.0, 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 in anticipation of an increase in orders from U.S. customers. There is evidence that this strategy has paid off, as orders have increased as U.S. manufacturers began increasing their stockpiles of goods and components in late 2024[7]. Conversely, Downstream firms reported a steep contraction in Inventory Levels at 33.9, consistent with reports of strong holiday sales for retailers. Interestingly, both Upstream and Downstream retailers are predicting that Inventory Levels will increase significantly over the next 12 months with future predicted expansions of 71.7 and 69.4 respectively. These numbers both represent significant rates of expansion and would be a major departure for the leaner inventory policies that categorized 2023 and 2024. By bringing inventories forward now, retailers hope to avoid increasing costs stemming from potential tariffs on consumers already tired from the inflation of 2021-2022[8]. Costs remain an issue as Inventory Costs, while down by 7.1 points, are still increasing at 61.6 which is a solid rate of growth. This is driven more by Upstream (65.7) than Downstream (54.8) firms. It is also notable that Inventory Costs were 9.8 points higher in the second half of the month, bumping up from 56.9 in early December to 66.7 in the second half of the month.

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[9], highlighting the difference between consumer behavior and corporate inventory strategies from 2023 to 2024. This fall has seen a similar story at the Port of Oakland where imports were up 13.1%, and exports up 8.5%, in November from the year prior[10]. This looks to continue into 2025. TEUs are up approximately 70% in the first full week of January[11]. This comes after several weeks of imports being up over 50% year-over-year to close out December. The difference seems to be that whereas in 2024 goods were coming in quickly but also being sold quickly in a reflection of JIT strategies, some of the projected buildup in 2025 seems to be in anticipation of stockpiling goods to be sold later.

Labor disputes could present a challenge for this anticipated inventory buildup. Negotiations between the ILA and East Coast ports are set to resume on January 7th[12]. President-elect Trump has voiced his support for the ILA in these talks, coming out against increasing automation at the docks[13]. The Ports of New York and New Jersey are also engaging in separate negotiations 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[14]. What volume of ships will be flowing to either coast via the Suez Canal in 2025 remains an open question. 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. Initial testing has been successful. This would allow the canal to have throughput and also make is less susceptible to disruptions like it experienced in 2021[15].

Perhaps reflecting the increased inventories analysts are expecting that available warehousing capacity will tighten up in 2025 relative to 2024 (which some believe was a “low point” of capacity utilization in this cycle) as firms increase inventories through the next 12 months[16]. Warehousing Capacity (+0.2) is at 56.9, which is a mild level of expansion. Growth was much slower for Upstream firms, who reported a score of 53.5 to the Downstream reports of 63.3. Upstream firms are expecting further tightening at 52.1, something that stands in sharp contrast to Downstream firms of Warehousing Capacity expansion at 71.7. This is a continuation of last month’s differences in predicted capacity. It will be interesting to see if this trend holds in January. This is despite estimates by the Industrial Info Resources (IIR) estimates that there is currently $9 billion of warehousing and distribution projects under construction in the U.S. In a move that suggests that e-commerce is continuing to grow, approximately $2 billion of this construction is attributable to Amazon alone[17]. Despite the potential for tariffs between the U.S. and Mexico, logistics service providers (LSPs) such as Prologis and C.H. Robinson are still moving ahead with their significant investments along the U.S.-Mexico border. Mexico has been the U.S.’s largest trade partner since 2019, and LSPs clearly expect that to continue even with potential changes to trade policy[18]. This is consistent with a broader trend of there being more excess logistics capacity than there was during the trade war of 2018-2019. With the extra storage capacity built up during the pandemic, importers have more space to hold goods the high levels of inventory that are currently coming into the U.S. Warehousing Utilization was up (+2.8) to 61.7 (again, driven by more by Upstream firms’ 65.5 than Downstream’s 54.8). We also observe continued growth in Warehousing Prices (-0.8) which read in at 68.0 in December. Price growth was highest in the first half of the month at 72.4, before dropping down to 63.7.

Another challenge to keep an eyer on for warehousing in 2025 is labor. Thousands of Amazon warehouse workers represented by the Teamsters’ Union went on strike during the week before Christmas[19]. While this does not seem to have had a significant impact on package delivery during the holidays, the involvement of Teamsters increases the chances that future strikes and walkouts could occur for at North America’s largest ecommerce retailer. Adding complexity to these talks of unionization is that despite Amazon’s continued push towards automation they are still heavily reliant on human labor. For instance, despite utilizing thousands of robots that perform different tasks, over 2,500 human workers are being brought on at their new Louisiana facility. Despite advances in automation, the human ability to adapt quickly to different types of products in different types of scenarios is still superior to what automation can accomplish, making them a critical piece of the continued growth of e-commerce[20]. Labor is an issue for U.S. manufacturing as well. 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[21]. As discussed above, demand for warehousing is expected to increase in 2025, particularly Upstream. It remains to be seen if issues with labor will be a bottleneck on the supply that is available to meet this demand. If so, we may see price growth increase beyond what is being forecasted here.

Transportation Price growth increased (+3.0) to 66.8 in December, which is the fastest rate of growth for this metric since April of 2022. The 13.7-point spread between Transportation Prices and Transportation Capacity is also the highest positive delta in favor of prices since that same month of April 2022. Transportation Capacity is up very slightly (+0.6) to 53.2. Despite the clear growth in freight demand and Transportation Prices, Transportation Capacity still has not dipped into contractionary territory with a reading below 50.0. Available Transportation Capacity has not contracted since July of March of 2022 when the freight recession of 2022-2024 began. This is a testament to the high levels of capacity that were built from 2020-2021. Upstream respondents expect this to change, predicting mild contraction at 48.8 over the next 12 months. Conversely, Downstream respondents expect mild expansion at 53.2. Further evidence of tightening in the freight market can be observed in FreightWaves’ tender rejection index, which briefly went into double digits for the first time in over two years as carriers scrambled to make holiday deliveries in late December[22]. They had been elevated year-over-year even before the holiday rush, so it will be interesting to see how deeply rejection rates sink in January[23]. Transportation Utilization expansion held steady (-0.1) at 60.5. Similar to the dynamic we saw with Warehousing Capacity, Upstream firms predict significantly higher rates of expansion for Transportation Utilization at 72.5 to the more meager Downstream expansion prediction of 56.5.

It will be interesting to see what happens with the costs of transportation going forward. The price of diesel fuel was up very slightly (+$0.027 per gallon) from a week ago, but is still down $0.373 per gallon from this time a year ago, continuing the trend that we observed throughout 2024[24]. It is likely that fuel costs will remain low in 2025 due to the glut in processing capacity brought about by electrification, fracking, and the reemergence of the U.S. as one of the world’s leading energy producers. Crude oil was trading at $73 per barrel at the end of 2024, an affordable number that is artificially inflated by OPEC+ holding back approximately 5 million barrels of production per day in an effort to keep prices high[25]. We also see that the pull forward of inventories has led to an 8% price increase for containers moving from Asia to U.S. West coast in the last week of December[26].  Carriers are expecting trans-Pacific spot rates to increase significantly (with the cost of shipping 40-foot containers estimated to hit $6,000) in January as shippers rush to stay ahead of Chinese New Year[27]. Airfreight is also expected to increase in the same period, particularly for movements from Asia to Europe[28]. It is unclear whether costs will go up or down following the Lunar New Year. Firms are clearly rushing inventories ahead now to get ahead of the holiday and potential tariffs. If tariffs are passed, we might expect to see the market slow down. If tariffs are muted or delayed in their implementation, then inventories may stay leaner and be lower costs, leading to it being moved more frequently which could increase Transportation Prices.