Buyers’ Market Will Continue Amid Growing Supply Chain Spare Capacity

The demand for raw materials and components continues to be weak, more so in Europe, signaling lingering economic weakness, according to GEP’s Supply Chain Volatility Index TM data for May. Suppliers today have the most amount of spare capacity since prior to the COVID-19 outbreak in 2020, when the pandemic broke global supply chains.

The index that tracks demand, shortages, transportation costs, inventories and backlogs, fell to -0.28 in May, way below -0.04 in April. It is the lowest level since May 2020.

Weak demand and excess supply are also making businesses less prone to stockpiling, shows the index data derived from a monthly survey of 27,000 businesses.

With the cost of raw and manufactured items declining, supply conditions vastly improved and broader demand remaining depressed, businesses see no compelling reason to hold costly excess items in warehouses.

Companies have been aggressively drawing inventories for the last eleven months as they look towards locking in lower prices for the rest of 2023 and 2024.

As a result, it is likely that this buyers’ market will continue through the second half of 2023.

Note: When the SCVI > 0, supply chain capacity is being stretched. The further above 0, the more stretched supply chains are.

When the SCVI < 0, supply chain capacity is being underutilized. The further below 0, the more underutilized supply chains are.
 

What Does the May Data Tell Us?

1. Demand facing suppliers worsened in May. However, demand across Asia is firmer than in Europe. Purchasing activity in North America has also weakened.
2. The supply of critical components and raw material such as textiles, foodstuff, metals, chemicals and computer chips continue to improve from the acute shortages during the pandemic. The data shows overall reports of items in short supply are broadly in line with their historic average.
3. Global transportation costs are running below historically average levels. This indicates more competitive pricing of logistics from haulers and cargo handlers. At -0.02, GEP's transport cost indicator is at its lowest level since September 2020.

The July release of the GEP Global Supply Chain Volatility Index will be 8 a.m. ET, July 14, 2023

For more insights and to request the full report, go to www.gep.com/volatility, and read

• The Economist: Supply chains are back to normal. Why is inflation still so high?
• Supply & Demand Chain Executive: Decline in Global Demand for Raw Materials, Components Indicates Economic Weakness