Transportation pricing grows faster than capacity again in May

Even with available capacity and only modest growth in utilization, transportation prices (63.1) continued to step meaningfully higher. Prices were just slightly inflationary at the beginning of the month but surged to 71.5 in the second half. (The report classifies a reading over 70 as “significant expansion.”)

The pricing index has outpaced the capacity index for 13 straight months. The dynamic could represent an improving freight market, but it also reflects transportation companies offsetting higher operating costs through rate increases.

Increases in logistics costs were more pronounced at smaller companies (69.8) than at larger entities (56.7).

Transportation prices were forecast to be significantly higher a year from now, with respondents returning a 75 reading for the pricing outlook.

There is a consensus building across the market that “the worst-case scenarios associated with potential tariffs will not come to pass,” and 2026 could be more reflective of a transportation recovery, barring a macroeconomic recession.

The overall LMI came in at 59.4 for May, up 60 basis points from April. In addition to higher transportation prices, increased costs across the supply chain drove the increase in the overall index.

Inventory costs (78.4) were up 2.8 percentage points even as growth in inventory levels (51.5) slowed by 5.5 points.

The inventory costs index was at its highest level since October 2022, and the 27-point gap between the two subindexes “suggests that the inventories that were rushed into the country earlier this year are now static and holding them is expensive,” the report said.

“If the spread between these two metrics remains this high, it could spell trouble for the overall economy.”

Inventory levels moved slightly into contraction in the back half of the month. Upstream firms (56.5) were taking delivery ahead of tariffs while downstream companies saw contraction (43.1).

“This is the first instance of contraction at the Downstream level since January and may indicate that the pull-forward that characterized much of the Winter and early Spring has subsided.”

Elevated but static inventories kept available warehouse capacity neutral at 50, which was 5.4 points lower than in April and the lowest reading in more than a year. Warehouse utilization (62.5) stepped 2.4 points higher, keeping warehouse prices (72.1) highly inflationary.

“Taken altogether, respondents expect higher than normal inventories, tight capacity, and significant cost expansion,” the report said. “These robust predictions may underlie a feeling that the current uncertainty surrounding trade issues will be wrapped up by this time a year from now.”

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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