Supply chain space capacity increases to highest level in five years

In the midst of a US-initiated global tariff war, supply chain capacity in March increased to its highest level since May 2020 (the height of the Covid-19 pandemic), according to the GEP Global Supply Chain Volatility Index.

The index, which – which tracks demand conditions, shortages, transportation costs, and inventories and backlogs across 27,000 global firms – declined to -0.51 in March, down from -0.45 in February and 0.21 in January. A value above 0 indicates supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized.

Globally, demand for raw materials and components was near its historical average, but there was a significant difference between geographies – with worsening factory input demand in North America contrasting with some pick-up in Europe and Asia.

Factories in North America retrenched sharply because of tariffs, with purchasing activity slowing the most in Canada. The regional index score in March fell sharply to -0.63 from -0.18 the prior month.

Meanwhile, Europe’s index score ticked up to -0.63 from -0.72, further signaling a tentative recovery from a long industrial recession.

The Asian index fell to -0.12 from 0.00 in February, with Asian supply chains broadly operating at capacity. While North American manufacturers have had to contend with tariffs since March 4, the effect of currently instituted 145% US tariffs on China will be reflected in next month’s report.

Reports of stockpiling fell to their lowest point since July 2016, highlighting a “wait-and-see” mood from procurement managers facing extraordinary uncertainty in global trade conditions.

“March’s sharp decline in supplier activity was due to the stifling effect of tariffs and tariff-related uncertainty, which had its strongest impact in North America, where manufacturers reported cutbacks to purchasing activity and inventories,” said John Piatek, vice president, consulting, GEP. “Until just last week, most companies had taken a wait-and-see approach. Now, organizations are aggressively exploring every possible way to eliminate costs, push suppliers to absorb tariffs, and de-risk their global supply chains.”

Reports of labor shortages in March remained contained, while global transportation costs were close to their long-term average level.