Red Sea Attacks Drive Transportation Costs to 15-Month High and Safety Stockpiling Increases Slightly, but No Signs of Panic So Far: GEP Global Supply Chain Volatility Index

• Excess global supply chain capacity shrinks to its lowest level in nine months, showing the first signs of recovery in global manufacturing
• Demand for raw materials, commodities and components, while subdued, also trends higher in January
• Asian supply chains at their busiest in nearly a year as factory purchasing rebounds in region’s key markets

Clark, N.J., Feb. 13, 2024 – The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses — rose to -0.12 in January, from -0.44 in December, its highest level since last April, indicating that spare capacity across global supply chains has shrunk notably.

Although this is the ninth successive month of excess capacity at global suppliers, the downturn eased to its weakest since last April. The index suggests that underlying trading conditions may be starting to improve as recession and inflation fears fade and businesses prepare for a stronger 2024.

The most noteworthy impact from the Red Sea disruption was to transportation costs, which rose to a 15-month high in January, as commercial ships took the lengthier route around the Cape of Good Hope. There was also a slight pickup in safety stockpiling, with reports from businesses of inventory building due to supply or price fears at the highest since last June. That said, they were well below the levels seen in 2021-2022 during the post-pandemic supply crunch.

Regionally, Asia’s supply chains were at their busiest in nearly a year as factory purchasing activity in China, South Korea and India rebounded, suggesting manufacturers there are gearing up for growth. In a similar vein, suppliers to North America and Europe saw their spare capacity shrink during January. Less slack was also seen for the U.K.’s suppliers, who have experienced subdued demand for 19 consecutive months.

“The world’s supply chains got busier in January, and activity at our global manufacturing clients is ticking up,” explained Daryl Watkins, senior director, consulting, GEP.

“With input demand trending higher, led by Asia, signalling a return to positive growth in the coming months, it is imperative business keeps tamping down suppliers’ price increases so inflation continues to trend down,” said Watkins, summarizing the implications.

Interpreting the data:

• Index > 0, supply chain capacity is being stretched. The further above 0, the more stretched supply chains are.
• Index < 0, supply chain capacity is being underutilized. The further below 0, the more underutilized supply chains are.

JANUARY 2024 KEY FINDINGS

• DEMAND: Purchases of raw materials, commodities and components remained subdued, although the decline eased to its weakest since last April, hinting at improving demand.
• INVENTORIES: Reports of safety stockpiling due to supply or price concerns ticked up to a seven-month high in January as disruption through the Suez Canal led some companies to build up inventory buffers.
• MATERIAL SHORTAGES: Global supply conditions remain healthy — reports of item shortages remain among the lowest seen in four years.
• LABOR SHORTAGES: Labor availability remains unproblematic for global suppliers, with reports of backlogs rising due to a lack of staff holding close to historically typical levels.
• TRANSPORTATION: Global transportation costs rose to a 15-month high in January, signalling some contagion from the disruption to shipping through the Suez Canal.

REGIONAL SUPPLY CHAIN VOLATILITY

• NORTH AMERICA: Index rose to -0.33, from -0.39, indicating the 10th consecutive month of underutilized supplier capacity.
• EUROPE: Index rose to -0.63, from -0.92, the lowest level of excess vendor capacity in five months.
• U.K: Index rose to -0.62, from -1.05, showing spare capacity at U.K. suppliers almost halving, which is a positive sign after 19 consecutive months of subdued input demand.
• ASIA: Index rose to 0.14, from -0.42, indicating the strongest pressure on the region’s supply chains in almost a year amid improving demand in key exporting nations.

For more information, visit www.gep.com/volatility

Note: Full historical data dating back to January 2005 is available for subscription. Please contact economics@spglobal.com.

The next release of the GEP Global Supply Chain Volatility Index will be 8 a.m. ET, March 13, 2024.

About the GEP Global Supply Chain Volatility Index

The GEP Global Supply Chain Volatility Index is produced by S&P Global and GEP. It is derived from S&P Global’s PMI® surveys, sent to companies in over 40 countries, totaling around 27,000 companies. The headline figure is a weighted sum of six sub-indices derived from PMI data, PMI Comments Trackers and PMI Commodity Price & Supply Indicators compiled by S&P Global.

• A value above 0 indicates that supply chain capacity is being stretched and supply chain volatility is increasing. The further above 0, the greater the extent to which capacity is being stretched.
• A value below 0 indicates that supply chain capacity is being underutilized, reducing supply chain volatility. The further below 0, the greater the extent to which capacity is being underutilized.

A Supply Chain Volatility Index is also published at a regional level for Europe, Asia, North America and the U.K. For more information about the methodology, click here.

About GEP

GEP^® delivers AI-powered procurement and supply chain solutions that help global enterprises become more agile and resilient, operate more efficiently and effectively, gain competitive advantage, boost profitability and increase shareholder value.

Fresh thinking, innovative products, unrivaled domain expertise, smart, passionate people — this is how GEP SOFTWARE™, GEP STRATEGY™ and GEP MANAGED SERVICES™ together deliver procurement and supply chain solutions of unprecedented scale, power and effectiveness. Our customers are the world’s best companies, including more than 550 Fortune 500 and Global 2000 industry leaders who rely on GEP to meet ambitious strategic, financial and operational goals.

A leader in multiple Gartner Magic Quadrants, GEP’s cloud-native software and digital business platforms consistently win awards and recognition from industry analysts, research firms and media outlets, including Gartner, Forrester, IDC, ISG, and Spend Matters.

GEP is also regularly ranked a top procurement and supply chain consulting and strategy firm, and a leading managed services provider by ALM, Everest Group, NelsonHall, IDC, ISG and HFS, among others. Headquartered in Clark, New Jersey, GEP has offices and operations centers across Europe, Asia, Africa and the Americas. To learn more, visit www.gep.com.

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