Global supply chains edging closer to capacity, says GEP report

Global supply chains are operating near maximum capacity, according to the monthly GEP Global Supply Chain Volatility Index.

GEP’s index rose in April to -0.18 from -0.32 in March, signaling a solid outlook for the manufacturing sector.

The monthly survey tracks 27,000 businesses globally to measure demand conditions, shortages, transportation costs, inventories, and backlogs. An index value above 0 indicates supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized.

"After four years of supply shocks, inflation, stockpiling, and uncertainty, global supply chains are now operating in a Goldilocks zone, a steady state of full capacity, not expanding or contracting too quickly, which is excellent news for global suppliers and business," said Mike Seitz, vice president for consulting at GEP.

Asia continued to drive a rise in demand after considerable weakness in 2023, with input demand at the region’s factories remaining strong. Asia’s index score rose to 0.07 in April, up from -0.07 in March, registering the first month of stretched supplier capacity since January.

"In China, we're seeing a steady pick-up in manufacturing activity, which will encourage Chinese Premier Li Qiang to accelerate efforts to remove barriers imposed by European markets and foster more FDI, especially as the potential for tougher U.S. tariffs and trade policies loom,” Seitz added.

Global demand for raw materials and components remained close to its long-term average.

The North American market had evidence of tightening capacity, with work backlogs reported by manufacturers in Mexico. Demand for inputs remained subdued in the region, but improved slightly.

North America’s index score remained flat at -0.30 versus -0.31 the month prior.

Globally, reports of backlogged orders due to staff shortages fell in April, and were broadly aligned with historically typical levels.

Demand conditions in Europe were less robust, with manufacturing continuing to lag other parts of the globe. Europe’s GEP index score increased slightly to -0.55 from -0.62, suggesting the industrial recession on the continent has eased since late last year.