Tariff fears evident in February supply chain data

Record imports ahead of new tariffs shaped sentiment among supply chain managers in February, according to the Logistics Managers’ Index report released Tuesday. The monthly query of logistics supply executives showed big moves in inventories and the costs to carry them along with knock-on effects in warehousing metrics.

The subindex for inventory levels jumped 6.3 percentage points to 64.8 in February with the inventory costs dataset stepping 7.1 points higher to 77.3. The LMI is a diffusion index in which a reading above 50 indicates expansion while one below 50 signals contraction. The report classifies a reading above 70 as “significant growth.”

The inventory subindex saw its fastest rate of expansion since October 2022 and has increased 14.8 points since a neutral reading in December. Not surprisingly, the upstream, or wholesale, portion of the supply chain logged a reading that was 11 points higher than that of downstream retailers. New imports arriving in the U.S. headed straight to wholesalers and distribution centers, and to stockpiles for later use in manufacturing.

“So far 2025 stands in stark contrast to the more JIT [just-in-time] inventory patterns of 2024 when average Inventory Level growth was a lean 52.7,” the report said. “It is likely that this increase has been at least partially driven by continually shifting trade policies.”

Growth rates for inventories and costs changed dramatically in the back half of February.

Inventory levels had a reading of 69.6 in the beginning of the month but slowed to an expansion rate of 60 by the end of the month. Costs surged from 71.1 to 82.7 from the beginning to the end of the month.

Warehouse prices jumped more than 18 points to 85.6 in the second half of February.

“Normally, we would expect that when Inventory Level growth decreases that associated costs would slow as well,” the report said. “We saw the opposite in late February, as growth in Inventory Costs and Warehousing Prices exploded to 82.7 and 85.6 respectively. These rapid rates of expansion likely indicate that firms are holding these high levels of inventory static and will slowly sell through them over time, which will put considerable pressure on available capacity (Warehousing Capacity read in at 50.0 in late February).”

The report cautioned that the change from a just-in-time to a just-in-case inventory strategy, along with the associated higher inventory carrying costs, led to high levels of inflation in 2021 and 2022.

The warehousing prices subindex moved 4 points higher to 77 during February with not much difference between upstream and downstream companies.

Warehouse capacity stayed just barely in expansion territory at 50.5, its second-lowest reading in 25 months. Capacity was 9 points lower at the wholesale level (46.6) than it was downstream.

Warehouse utilization fell 2.8 points to 65.5.

Tariff concerns alter freight patterns

Inventory costs and warehouse prices logged their highest growth rates “in several years as supply chains strain to shoulder both the volume and velocity of inventory that poured across U.S. borders in January and early February as firms attempted to avoid costs associated with potential tariffs.”

Tariffs of 25% on Mexico and Canada, along with another 10% tariff on China, went into effect on Tuesday. The Trump administration has noted more tariffs, reciprocal or otherwise, remain in its arsenal. The potential inflationary impact could derail the freight industry’s long-awaited recovery.

“If all of the threatened tariffs were to be implemented, along with the recently imposed duties on steel and aluminum, the total additional cost would be approximately $250 billion if volumes remained consistent year-over-year,” the report said.

The report also noted incremental costs associated with tariffs as credit terms that importers have with their brokers, which often pay the duties at the border, change.

“However, even if tariffs are not put into place, the uncertainty has clearly already had an effect,” the report continued. It said inquiries to Canada’s export credit agency have jumped from 30,000 to 40,000 per period to more than 1 million as companies seek alternatives to the U.S.

Canada responded Monday announcing plans for $107 billion worth of levies on U.S. goods while China said it would move forward with tariffs of up to 15% centered largely on U.S. agricultural goods.

Transportation metrics cool

The overall index increased 80 basis points to 62.8, the highest growth rate since June 2022 and the second straight reading above the index’s all-time average of 61.7.

The transportation datasets saw a modest setback in the month after showing recent improvement.

Transportation capacity (55.1) increased 2.5 points from January as utilization (57.8) slid 2.3 points. Transportation prices (65.5) fell 4.9 points after posting the fastest growth rate since the freight recession began last month.

“Having price expansion come in 10 points higher than capacity expansion suggests that the freight market is still moving in an overall positive direction,” the report said.

Transportation prices are expected to be growing significantly one year from now with respondents returning a forward-looking reading of 76.8 in the month.

The LMI is a collaboration among Arizona State University, Colorado State University, Florida Atlantic University, Rutgers University and the University of Nevada, Reno, conducted in conjunction with the Council of Supply Chain Management Professionals.

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