July LMI Slips to 68.9 as Retail Inventory Growth Slams Into Reverse

The Logistics Managers’ Index (LMI) for July registered 68.9, a healthy expansion but a marked step down from June’s 71.1 — the first time the index had topped 70 since March 2022. A reading above 50 still signals growth, and July’s print remains stronger than anything seen during 2023–2025, but the deceleration reveals a sharp shift in the behaviour of downstream retailers.

The headline slowdown was powered by an abrupt inventory pivot. Inventory Levels fell 5.5 points to 55.0, dragged down by retailers, who went from vigorous expansion (66.0) to outright contraction (46.3) in July. According to LMI contributor Dale Rogers, the spike in inventory building last year — much of it pulled forward ahead of anticipated tariff increases — is now unwinding, leaving goods likely sitting further upstream at the wholesale level.

Meanwhile, costs refused to follow inventories lower. Inventory Costs rose 1.1 points to 77.0, outstripping inventory levels by 22 points and reflecting the compounded pressure of tariffs and conflict. Warehousing Prices jumped 1.7 points to 75.5 — the fastest pace since January 2025 — as firms scrambled for scarce storage space ahead of the incoming Trump administration’s anticipated tariff regime. On the transport side, capacity remains extremely tight: the Transportation Capacity index contracted further to 28.4, matching April’s near-historic low, while Transportation Prices, though easing 5.5 points to 86.9, still point to robust rate expansion.

The report’s authors were blunt about the confusion tariffs have injected into supply chain planning, singling out the new forced-labor tariffs as ones “where you cannot make a deal to reduce them” and decrying an “unnecessarily confusing time” for U.S. supply chain managers.

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Behind the Numbers: A Retailer Pullback, Tariff Bites, and Tight Capacity

Retailers hit the brakes on inventory, but the goods haven’t disappeared

The 19.7-point swing in downstream inventory sentiment — from expansion to contraction — doesn’t mean warehouses are empty. The LMI team’s interpretation is that inventory pulled forward ahead of tariffs and the holiday season is now parked upstream, at wholesalers and manufacturers. That pattern suggests retail restocking may be muted in coming months, while back-end distribution centers remain full. For logistics providers, that could mean a shift in demand from retail-to-store shipments toward longer-haul bulk movements and wholesale storage.

Tariffs and war are a toxic mix for inventory costs

Inventory Costs climbing to 77.0 while physical stock growth slows highlights the pure price pressure flowing from trade policy and geopolitical disruption. The report explicitly notes that tariffs “have begun to bite” and that the new forced-labor measures are especially disruptive because they cannot be negotiated away. This is not a one-time shock: the combination of uncertainty over tariff permanence and rising input costs from conflict is likely to keep inventory carrying costs elevated, compressing margins for importers and retailers who cannot pass them on quickly.

Tight transport capacity keeps rates historically strong

The Transportation Capacity index at 28.4 is the second-fastest contraction in LMI history, signaling that carriers are running at the limits of their networks. Even as Transportation Prices dipped from June’s peak, a reading of 86.9 is still deep in expansion territory. For shippers, this means contract rates are unlikely to soften meaningfully in the near term, particularly with back-to-school and holiday peak season approaching. The risk of spot rate spikes remains high if any further supply disruption occurs.

What Supply Chain Leaders Should Do Now

  • Audit where inventory is actually sitting. With retailers contracting but wholesale levels likely swollen, shippers should map stock positions across tiers to avoid double-ordering and to plan for a potential upstream destocking wave.
  • Lock in warehousing space now. Warehousing Prices hit their fastest expansion since January 2025, and capacity continues to contract. Extending leases or pre-booking flexible space before peak season could insulate against further price surges.
  • Stress-test exposure to non-negotiable tariffs. The report’s flag on forced-labor tariffs means import categories tied to those measures will face persistent cost pressure. Diversify sourcing or build explicit tariff buffers into Q4 budgets.
  • Prepare transportation budgets for firm rates. With Transportation Capacity near historic lows, expect carrier pricing power to persist. Prioritize contract freight and limit spot-market exposure for critical lanes during peak demand windows.

Risk & Opportunity Assessment

Commercial RiskHighInventory Costs (77.0) are far outpacing Inventory Levels (55.0) due to tariffs and war, squeezing margins for inventory-heavy businesses; warehousing and transport prices remain elevated, raising total logistics costs.
Competitive RiskMediumFirms that locked in warehousing capacity and freight contracts earlier may enjoy a cost advantage over competitors now facing tight supply and last-minute spot-rate exposure.
Regulatory RiskHighNew forced-labor tariffs are described as non-negotiable, while uncertainty over the permanence of other tariffs makes it difficult for supply chain managers to plan sourcing and inventory strategies.
Reputation RiskLowNo specific reputational events are tied to the LMI data; the risk is broad industry cost pressure rather than firm-specific reputation impact.
Technology DisruptionLowNo technology-specific drivers are cited in the July LMI; the dynamics are driven by policy, war, and capacity fundamentals.
Commercial OpportunityMediumCarriers and warehouse operators benefit from tight capacity and elevated prices; shippers that can secure capacity early or pass through tariffs effectively may gain share.