The Logistics Manager’s Index (LMI) revealed flat overall inventory levels in December, suggesting accurate holiday demand forecasting. However, a significant divergence between upstream and downstream inventory levels points to substantial freight movement opportunities in early 2025, according to Hyperloop Capital Insights.
Table Content:
Upstream vs. Downstream: A Tale of Two Inventories
Dr. Zac Rogers of Colorado State University, speaking on the Freightonomics podcast, highlighted the stark contrast between upstream and downstream supply chain activity. Upstream warehousing, focused on long-term storage of finished goods, saw moderate growth in December (LMI: 57.9). These facilities are typically located near major ports like Los Angeles and Savannah. Conversely, downstream distribution and fulfillment centers, situated closer to consumers, experienced significant inventory contraction (LMI: 33.9), indicating robust holiday sales. This disparity suggests potential overstocking upstream and underestimation of consumer demand downstream.
Replenishing the Pipeline: Implications for 2025
The inventory imbalance indicates a likely surge in downstream restocking efforts in early 2025. This replenishment cycle presents a significant opportunity for freight transportation providers, particularly in the intermodal sector.
Debunking the Cost-Control Theory
While rising warehousing costs might seem a motive for inventory reduction, this theory is flawed. Warehousing expenses remain relatively fixed regardless of inventory levels, and lost sales due to stockouts outweigh holding costs. Moreover, consistent import volumes, reflected in the Inbound Ocean TEUs Volume Index (IOTI), contradict the cost-cutting narrative. The slight recent increase in the IOTI is attributed to the earlier Lunar New Year in China, impacting order timelines.
Intermodal vs. Truckload: Shifting Freight Landscape
Current trends favor intermodal transportation, fueled by cost advantages and longer lead times for upstream warehouses. Loaded international and domestic container volumes by rail from Los Angeles are up approximately 20% year-over-year. However, the truckload sector hasn’t experienced a comparable surge, especially for long-haul freight. Tender volumes from Los Angeles are slightly down year-over-year, despite the port’s dominant role in U.S. container imports.
Data indicates a shift towards shorter-haul trucking, with a 13% increase in December for freight moving under 100 miles. This suggests a growing reliance on rail for long distances and trucks for final-mile delivery.
Consumer Spending and Transportation Sector Outlook
Sustained consumer spending underpins the positive outlook for the transportation sector. While gains are unevenly distributed, the truckload market is undergoing a transition. Intermodal competition has reduced excess capacity, contributing to the first signs of sustained contract rate inflation since 2022. This shift signals a potential strengthening of the truckload market in the long term.
Conclusion: A Year of Movement
The contrasting inventory levels between upstream and downstream sectors signal a dynamic start to 2025. The anticipated replenishment cycle promises robust freight demand, particularly benefiting intermodal transportation. While the truckload sector faces challenges, the overall trend of strong consumer spending and reduced capacity suggests a potential market recovery. Hyperloop Capital Insights anticipates significant opportunities for investors and stakeholders across the freight transportation landscape in the coming year.
