Navigating Tariff Challenges: Insights from February's Supply Chain Data

Analytics

Navigating Tariff Challenges: Insights from February's Supply Chain Data

Record imports ahead of new tariffs profoundly shaped sentiment among supply chain managers in February, as highlighted in the Logistics Managers’ Index (LMI) report released Tuesday. This pivotal report, sourced from logistics supply executives, showcases significant fluctuations in inventory levels and the associated carrying costs, coupled with substantial effects in warehousing metrics.

February's Inventory and Cost Surge

In February, the subindex for inventory levels surged 6.3 percentage points, reaching 64.8. Meanwhile, inventory costs rocketed 7.1 points to 77.3. The LMI's diffusion index indicates expansion with readings above 50 and contraction below. A reading exceeding 70 signifies “significant growth.”

The inventory subindex expanded rapidly, marking its fastest rate since October 2022 and jumping 14.8 points since December's neutral reading. Interestingly, the upstream (wholesale) section of the supply chain reported readings 11 points higher than downstream retailers. Consequently, new imports arriving in the U.S. were directed straight to wholesalers, distribution centers, and stockpiles reserved for manufacturing.

“So far 2025 stands in stark contrast to the lean just-in-time (JIT) inventory patterns of 2024,” the report observed. “This rise is likely spurred by ongoing shifts in trade policies.”

Growth rates in inventories and costs shifted dramatically in February's second half. Inventory readings dipped from 69.6 initially to a moderate expansion rate of 60 by month-end. Cost surges soared from 71.1 to 82.7, while warehouse prices leaped more than 18 points to 85.6.

Tariff Concerns Alter Freight Patterns

Inventory costs and warehouse prices recorded peak growth rates “in several years,” reflecting the capacity strain as supply chains absorbed the vast inventory influx prompted by trying to preempt potential tariffs. Tariffs of 25% on Mexico and Canada, plus an additional 10% on China, came into effect recently. The current administration hinted at using more tariffs, affecting the freight sector's anticipated recovery.

“If all proposed tariffs were implemented, including duties on steel and aluminum, estimated additional costs would amount to approximately $250 billion, assuming consistent year-over-year volumes,” the report indicated.

Increased brokerage duty costs and shifting credit terms due to tariffs led importers to explore alternative routes, as evidenced by soaring inquiries to Canada’s export credit agency. Canada's countermeasures included announcing $107 billion worth of levies on U.S. products, whereas China aimed for 15% tariffs, particularly targeting U.S. agricultural exports.

Transportation Metrics Cool

The overall LMI increased by 80 basis points to 62.8—the most significant growth since June 2022—and marked the second consecutive reading above its all-time average of 61.7. However, transportation datasets experienced modest setbacks after recent improvements.

Transportation capacity grew 2.5 points to 55.1, while utilization slid by 2.3 points to 57.8. Despite a 4.9-point fall in transportation prices—post their fastest growth since last year’s freight recession—optimism abounds. Anticipated price expansion, predicted at 10 points higher than capacity expansion, suggests ongoing positive market momentum. Respondents foresee notable transportation price growth in the coming year, reflected by a forward-looking index of 76.8.

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The LMI project, a collaboration among leading universities like Arizona State and Colorado State, with professional insights from the Council of Supply Chain Management Professionals, continues to be a valuable resource in navigating these challenges.

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