The July Logistics Manager Index (LMI) reveals key shifts in the freight market, with transportation capacity contracting at a faster rate even as overall logistics costs edged slightly lower month-over-month. The data, combined with increased regulatory enforcement on the nation's highways, points to a tightening market heading into peak shipping season — the late-summer-through-fall period when retailers build inventory ahead of the holidays and freight demand typically surges.

LMI Headline Figures

The LMI registered 68.9% in July, down from 71.7% in June but still nearly 7 points above the index's all-time average of 61.7%, according to an Aug. 5 FreightWaves SONAR market update delivered by FreightWaves analyst Julie. The LMI, produced jointly by researchers at Arizona State University, Colorado State University, and Rochester Institute of Technology, surveys logistics managers across warehousing and transportation sectors, with readings above 50 indicating expansion and below 50 signaling contraction. The three-month average for the LMI stood at 69.8, placing July just 0.9 points below that recent trend. The index's all-time low sits at 45.4 and its high at 76.2.

"When you still think about that overall average as well as that low, we're significantly above that. All indicators of a pretty healthy freight [market]," the analyst noted.

Transportation Metrics Show Contraction

Transportation capacity was among the sharpest movers in the report, sliding from 30.8 in June to 28.4 in July — a decline of roughly 2.5 points — with the directional indicator showing contraction at a faster rate of change. A reading well below 50 reflects that surveyed managers see fewer trucks available relative to demand, a dynamic that historically pressures shippers' budgets and supply chain reliability. Transportation utilization fell even more steeply, dropping 9.7 points from 74.7 to 65.0, though the projected direction remained expansionary, albeit at a slower rate.

Transportation pricing also eased, falling from 92.4 to 86.9, consistent with softening in the national spot rate index. However, the projected direction remained expansionary, though at a slower pace.

Spot and Contract Rate Dynamics

On the spot rate side, FreightWaves' NTI USA index — the National Truckload Index, a benchmark for per-mile spot market rates — declined to $3.47, off about 7.5% month-over-month. Despite the sequential decline, the analyst noted that the level remains extremely elevated compared to the prior three years when accounting for normal late-July and early-August seasonality.

The STRI.US tender rejection index dipped to 13.84%, down 2.74% from the prior month. The rejection rate measures the percentage of contracted freight loads that carriers turn down, making it a widely followed gauge of capacity availability. Here too, the analyst emphasized that rejection rates remain extremely elevated relative to recent years.

Truckload contract rates, tracked by VCRPM1.USA, held at $271 plus fuel and remained 18% above year-ago levels. The analyst described how rising contract rates are pulling more freight back into routing guides and compressing rejection rates:

"As contract rates rise, mini bids and new bid cycles are executed, routing guides are standing up, more contract freight is being accepted at those newly agreed-upon increased contract rates, which then causes those tender rejections to normalize a bit and fall."

Inventory and Warehousing Metrics

Inventory levels slipped from 60.5 in June to 55.0 in July, a drop of more than 5 points. However, the LMI's projected direction for inventories pointed to future expansion at a faster rate of change, suggesting restocking and replenishment ahead of peak season and into the fall.

Inventory costs rose from 75.9 in June to 77.0 in July, with the direction still showing expansion.

Warehousing capacity edged lower, from 47.5 to 46.3, while warehousing utilization declined approximately 3 points from 69.4 to 66.7. Warehousing pricing continued to climb, rising from 73.8 to 75.5, with the direction showing expansion at a faster rate of change.

Aggregate logistics costs dipped slightly from 242.1 to 239.5 but were projected to expand, albeit at a slower pace.

Retailer Outlook and Inventory Replenishment

The discussion highlighted comments from Gene Seroka, Executive Director of the Port of Los Angeles — the busiest container port in the Western Hemisphere — that retailers remain bullish on the second half of the year, with robust container volumes seen earlier in the year expected to continue through year-end. The analyst agreed that a replenishment cycle appears likely given the declining inventory readings.

"With inventory levels continuing to fall, we should see a restocking and replenishment at some point going in again to a normal peak season and into fall," the analyst said.

Year-over-Year Comparison and Tariff Context

The conversation also addressed the contrast with the prior year, when the market was navigating uncertainty around Liberation Day tariffs and elevated China tariffs. At that point in July of the prior year, a 10% tariff on Chinese goods had been paused, with the threat of reinstatement on August 1 if negotiations failed. That tariff-related noise has largely dissipated this year.

Additionally, a resurgence in the industrial economy — confirmed by railroad reports and ISM data from the Institute for Supply Management, whose Manufacturing PMI is among the most closely tracked forward-looking indicators of U.S. factory activity — has been a distinguishing feature this year compared to the prior year, when the industrial rebound did not materialize until approximately November.

Oil Price Context

The discussion referenced the oil price environment of a couple of months prior, when crude hit $115 per barrel and some narratives suggested prices could reach $200. That scenario did not materialize. The speakers observed a recurring pattern of geopolitical tensions escalating over weekends — particularly regarding threats of attacks on Iran — followed by de-escalation by Sunday, which they described as predictable and reflective of the administration's sensitivity to financial market reactions.

Operation Highway Shield Adds Capacity Pressure

Adding pressure to available capacity, the Department of Transportation's Operation Highway Shield — a coordinated enforcement effort involving the Department of Homeland Security (DHS), the Federal Motor Carrier Safety Administration (FMCSA), and state agencies — conducted a three-day blitz through the Midwest in late July.

The operation pulled more than 750 unsafe trucks or drivers from the road, detained 51 people on immigration violations, and cited 36 English-language proficiency violations. The initiative began in Florida before expanding into the Midwest.

The analyst noted that the multi-agency crackdown represents an ongoing regulatory push: "It shows is there's going to be continued regulation. It's not going anywhere. There's going to be a continued push for improved safety on our highways, which is going to create more barriers to entry and is going to create continued capacity leaving the market. It's also going to create emotion around capacity leaving the market, which is, in my opinion, going to continue to push spot rates."

Outlook

Looking ahead, the FreightWaves analyst said capacity is unlikely to re-enter the market at scale and forecast continued tightening through the last week of August, citing Road Check — the annual multi-day commercial vehicle inspection blitz conducted by the Commercial Vehicle Safety Alliance (CVSA) — and other safety enforcement activity. The analyst expects a more normal peak season heading into the fall.

A more detailed breakdown of the July LMI was scheduled to be presented Thursday on the Freightonomics segment, featuring LMI co-author Dr. Zach Rogers alongside Zach Strickland. All LMI data is accessible directly in FreightWaves SONAR, including an executive dashboard that provides a snapshot of each month's numbers, and the full report is available directly from the Logistics Manager Index.

Source: FreightWaves