Warehouses empty in December

Chart of the Week:  Logistics Managers’ Index – Inventory Levels, Warehouse Utilization SONAR: LMI.INVL, LMI.WHUT

After a year of pulling goods into the country in an effort to navigate tariffs and reduce exposure to trade policy uncertainty, companies allowed inventory levels to fall at the fastest pace of the past decade. This is by far the most interesting supply chain development to start the year, as it offers meaningful insight into what may lie ahead for the remainder of 2026.

The Logistics Managers’ Index (LMI) measures multiple components of the supply chain, including inventory levels (INVL) and warehouse utilization (WHUT). Readings are reported on a scale from 1 to 100, with values above 50 indicating expansion and below 50 indicating contraction. Importantly, these figures represent rates of change rather than absolute levels.

The latest December reading for inventory levels came in at 35.1, signaling the fastest drawdown of goods in the history of the index, which began in late 2016. Warehouse utilization also fell to an all-time low of 42.9, reinforcing the view that businesses are actively clearing their facilities.

Trade policy uncertainty remains elevated, as the Supreme Court has yet to rule on the legality of the IEEPA tariffs, which account for roughly $131 billion of the $253 billion in tariff revenue collected to date.

Some businesses may have incorporated the expectation of a ruling into their replenishment decisions. However, the data does little to support this explanation, as import demand appears slightly higher than it was in 2023, when inventories were bloated and being drawn down. Regardless, it represents yet another reason for firms to delay new orders into the New Year.

Perhaps the biggest takeaway is that businesses appear to be shifting back toward a pure just-in-time inventory model, away from the more defensive early- or over-ordering strategies that characterized much of the past year.

Leaner inventories increase dependence on transportation services and, critically, their reliability. The challenge is that transportation providers—particularly truckload carriers and 3PLs—have also been managing lean operations to control costs after several years of demand lagging supply.

As a result, carrier networks are now relatively thin and less capable of responding to sharp changes in market conditions, even when overall demand remains subdued. The SONAR Tender Rejection Index (STRI), which measures carrier compliance, jumped from 6.3% in mid-November to over 13% during the Christmas period—the highest level since April 2022 and nearly 400 basis points above 2024 levels.

As of January 8, the STRI remained above 10.5%, despite a period when capacity should typically be easier to secure. The market has increasingly struggled to normalize after holiday disruptions, supporting the idea that there is less buffer available within carrier networks.

On last week’s Freightonomics podcast, LMI co-author Dr. Zac Rogers noted that thinner inventories could create a greater sense of urgency around shipping. Many upstream firms are already anticipating meaningful challenges in securing transportation capacity in the year ahead.

While many remain hesitant to call for a full transportation market flip given relatively weak demand, supply-side conditions are already primed. Shippers may be forced into a more reactive operating environment driven by cost pressures and economic uncertainty. In this context, it may not take strong demand growth for the market to turn.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

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