Inventory used to be a tactical problem. Keep enough on hand to meet demand, but not so much that you tie up working capital. Optimize the balance. Rinse and repeat.
That playbook is dead.
November 2025 marked the eleventh consecutive month where inventory costs exceeded 70.0 on the Logistics Managers' Index—the threshold indicating significant expansion in carrying costs. Not a single month in 2025 registered below this critical level. August hit 79.2, the second-highest reading since October 2022 when global supply chains were still recovering from pandemic chaos.
This isn't a spike. It's a structural shift.
The Cost Baseline Just Moved
Here's what executives need to understand: inventory costs have permanently reset upward. The pre-2020 baseline—where inventory was relatively cheap to hold and just-in-time optimization dominated—is gone.
Steve Beda, EVP at Trax Technologies, frames it plainly: "Every single month of 2025 has registered inventory costs above 70.0. That's not volatility—that's a reset. Firms have fundamentally changed how they think about inventory costs."
Survey respondents confirm this reality. They predict costs will remain above 70.0 for the next twelve months. Not optimism about normalization. Not hope for improvement. Just acceptance that expensive inventory is the new baseline.
Four Cost Drivers You Can't Ignore
Let's talk about the must-sees:
1. Working Capital Expenses
Interest rates on inventory financing remain elevated. Small firms pay 8-12% on working capital loans. Even large enterprises with better access pay 5-6%—still significantly higher than the near-zero rates of the 2010s.
When you're carrying billions in inventory for extended periods, those percentage points compound fast. According to research from the National Bureau of Economic Research, working capital costs have become one of the top three operating expense categories for supply chain-intensive businesses.
The tariff-driven pull-forward only amplified this pressure. Companies stockpiled inventory from June through September, tying up cash for months before goods moved downstream. Extended holding periods multiplied financing costs.
2. Storage and Handling
Warehousing pricing stayed above 60.0 for eleven consecutive months. Labor costs for inventory management remain elevated due to tight labor markets and wage growth. Technology investments in warehouse management systems, robotics, and automation add ongoing operational expenses.
Every pallet sitting in a facility costs money: space rental, climate control, security, insurance, handling labor, inventory shrinkage. When you're holding 20-30% more inventory than historical norms—as many firms did through 2025—those per-unit costs scale dramatically.
3. Procurement Complexity
The China-plus-one strategy isn't free. Diversifying suppliers away from single-source dependence requires:
- Quality control investments for new supplier relationships
- Additional testing and validation protocols
- Longer lead times that necessitate higher safety stock levels
- Currency hedging costs when sourcing from multiple regions
- Relationship management across a broader supplier base
Each new supplier relationship adds procurement overhead. What used to be a single purchase order to a single Chinese manufacturer is now three orders to Vietnam, India, and Mexico—each with different specifications, lead times, and quality standards.
4. Risk Management Costs
Insurance premiums increased for expanded inventory positions. Obsolescence risk grows when holding slow-moving items longer. Demand forecasting becomes more complex with diversified sourcing and longer supply chains.
Companies are essentially paying a premium for supply chain resilience. That premium shows up in inventory costs.
The August Warning Sign
August 2025's 79.2 reading deserves special attention. This represented the second-highest inventory cost measurement since October 2022—when ports were still congested, container rates were astronomical, and labor strikes disrupted operations.
But August 2025 had none of those acute crises. Ports operated normally. Container rates had normalized. Labor relations were stable. Yet inventory costs approached pandemic-era levels.
Why? Because the cost structure itself has fundamentally changed. What used to require a crisis to reach 79.0+ now happens during "normal" operations.
The Velocity Gambit
Here's the strategic pivot happening across supply chains: firms are accepting expensive inventory but betting on rapid turnover.
Steve's analysis: "The question for 2026 isn't whether costs will come down, but whether rapid turnover can compensate for elevated per-unit costs. We're moving from 'minimize inventory costs' to 'optimize inventory velocity.'"
The new framework:
- Fast-moving items: Stock up aggressively despite high costs
- Slow-moving items: Accept higher back-order risk rather than carry expensive inventory
- Traditional just-in-time: Returns, but at a higher cost baseline
This works brilliantly—if demand materializes and inventory turns quickly. If consumer spending falters and goods sit longer than expected, elevated costs become a liquidity crisis.
What Eleven Months of Data Reveals
Look at the trend:
- January 2025: 72.1
- March 2025: 74.8
- June 2025: 76.5
- August 2025: 79.2 (peak)
- November 2025: 70.8 (second-lowest of the year, still elevated)
Even November's "improvement" to 70.8 remains above the significant expansion threshold. According to Federal Reserve Economic Data, this sustained elevation across an entire calendar year is unprecedented in post-2008 supply chain history.
The consistency matters. If costs spiked for two or three months, you could attribute it to temporary disruption. Eleven consecutive months indicates structural change, not cyclical volatility.
The Small Firm Squeeze
Inventory cost elevation hits hardest where capital is most expensive and margins are thinnest: small firms.
Large enterprises access commercial paper and credit facilities at favorable rates. They negotiate volume discounts on warehousing. They deploy sophisticated forecasting tools to optimize inventory levels. They absorb cost increases within diversified revenue streams.
Small firms lack all these advantages. They pay premium rates on working capital. They lack negotiating leverage with warehouse providers. They use spreadsheets instead of AI-powered forecasting. And a 5-percentage-point cost increase can eliminate their entire operating margin.
The employment data confirms this reality: private firms with fewer than 500 employees shed 31,000 jobs in October. When inventory becomes prohibitively expensive to hold, small firms cut staff to preserve cash.
The 2026 Test
Future expectations are clear: survey respondents believe inventory costs will remain above 70.0 through 2026. The question isn't whether costs normalize—it's whether companies can operate profitably within this new cost structure.
Three scenarios for 2026:
Optimistic: Inventory turns rapidly, velocity compensates for elevated costs, and firms validate their working capital investments.
Middle: Costs remain high but manageable, profit margins compress but survive, and differentiation determines winners and losers.
Pessimistic: Consumer spending weakens, inventory doesn't turn as expected, elevated costs meet slow velocity, and create liquidity crises.
Which scenario unfolds depends on factors largely outside supply chain control: Federal Reserve policy, consumer confidence, employment trends, housing affordability, and geopolitical stability.
From Cost Problem to Strategic Imperative
The firms that win in 2026 won't be those hoping costs will normalize. They'll be those redesigning operations around expensive inventory as the permanent baseline.
That means:
- Real-time visibility into inventory positioning across the network
- Dynamic forecasting that adjusts to demand signals within days, not quarters
- Financing structures that treat inventory as a strategic asset requiring capital allocation
- Technology investments that accelerate turnover velocity
Understanding where inventory costs actually hit your P&L requires granular freight audit data that connects transportation spend to inventory movements. Most companies have visibility into aggregate costs but not the per-unit, per-lane, per-SKU detail needed to optimize in this new environment.
Ready to understand exactly where elevated inventory costs are impacting your bottom line? Contact Trax to learn how normalized freight data transforms cost visibility from quarterly reports into daily operational intelligence.