News #106 - March supply chain data craters following inventory pull-forward

The latest Logistics Managers’ Index (LMI) recorded its third-largest month-over-month decline in March 2025, underscoring growing concerns within the supply chain sector. According to the report, the index fell by 5.6 points to 57.1, marking its lowest level since August 2024. This steep decline trails only the disruptions caused by the early COVID-19 pandemic and the onset of the Russia–Ukraine conflict in terms of severity since the index was established nine years ago.

The LMI, a diffusion index where readings above 50 indicate expansion and those below 50 indicate contraction, had shown optimistic trends in January and February, reaching the highest levels since June 2022. However, March’s sudden reversal reflects an emerging strain across logistics networks.

“Respondents identified the dual pressures of inflation and impending tariffs as key drivers of their increasingly cautious outlook,” the report noted. “While a reading of 57.1 still indicates expansion, the concern lies in the sharp deviation from the upward trend seen since July 2023.”

Cost Subindexes Experience Broad Declines

The March decline was primarily driven by sharp reductions across all major cost and pricing components—inventories, warehousing, and transportation—each of which had exceeded 70 in January, signaling robust growth. The current figures reflect a pronounced cooling following an aggressive inventory pull-forward earlier in the quarter, as companies raced to bring in goods ahead of impending tariff implementations.

With new U.S. import tariffs taking effect on April 2, many businesses expedited shipments during January and February. This frontloading, while helping to avoid tariff-related costs, has now left supply chains temporarily saturated, softening pricing dynamics and slowing delivery flows.

Transportation Metrics Reverse Early Gains

The transportation segment showed clear signs of deceleration in March, reversing gains seen at the beginning of the year:

Transportation Capacity fell by 1.6 points to 53.6, still marginally within expansion territory.

Utilization dropped 3.8 points to 54, while transportation prices experienced a sharp 9-point decline to 56.4, marking their lowest reading since July 2022.

These figures reflect an increasingly sluggish freight environment. Notably, the transportation prices subindex dropped further to 51.1 in the second half of March, down from 60.5 in the first half. This brought it below the capacity index for the first time in months, indicating what analysts refer to as a “freight inversion”—a condition that typically signals a downturn in the transportation market.

“While this could prove to be a temporary fluctuation, a sustained decline in freight activity may foreshadow broader economic headwinds,” the report warned.

Despite the recent softness, respondents forecast a 12-month forward outlook for transportation prices of 64, although this is 13 points lower than in February, indicating moderated optimism.

Inventory Dynamics Shift Post-Tariffs

Inventory levels remained elevated in March, though growth decelerated:

The inventory level subindex declined 3.6 points to 61.2.

Downstream firms such as retailers reported higher inventory levels (66.7) than upstream wholesalers (58.9), reversing the February trend.

Inventory costs dropped 6.7 points to 70.6, with a similar divergence between downstream and upstream players.

This suggests that much of the frontloading activity has already occurred, leaving firms in a holding pattern as they evaluate the real impact of newly implemented trade regulations.

“Businesses are navigating a difficult balance—seeking to stock up before tariffs take full effect, while being cautious not to overstock and repeat the overcapacity issues experienced in 2022,” the report noted.

Warehousing Trends Reflect Upstream-to-Downstream Shift

Warehousing dynamics continued to evolve in response to the inventory shift:

Warehousing capacity increased by 1.8 points to 52.3, although it tightened significantly among downstream firms (47.9) as goods moved closer to end consumers.

Warehouse utilization dropped 5.8 points to 59.7.

Warehouse prices fell sharply by 16 points to 61, marking one of the steepest monthly declines in the dataset’s history.

Despite softening in the broader market, demand remains strong in select areas, particularly from Asian third-party logistics (3PL) providers and e-commerce companies, which continue to secure warehouse space across the U.S.

Looking ahead, downstream companies anticipate a surge in warehouse rental costs over the next year, projecting an index reading of 81.3, compared to a more modest 61.4 from upstream firms.

Forward-Looking Sentiment Dips

The March survey revealed that overall supply chain optimism had moderated. Respondents reported a one-year forward LMI expectation of 60.6, down 5.6 points from the February projection.

The Logistics Managers’ Index is a collaborative initiative led by Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University, and the University of Nevada, Reno, conducted in partnership with the Council of Supply Chain Management Professionals (CSCMP). The index captures the sentiments of supply chain professionals across key performance indicators, providing a leading indicator of logistics sector trends.

Source: https://www.freightwaves.com/news/march-supply-chain-data-craters-following-inventory-pull-forward

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