Middle East war pushes supply chain pressures to three-year high

Global supply chain pressures rose to a three-year high in March as the energy price shock and maritime disruption of the US and Israel’s war with Iran made an immediate impact, according to GEP’s monthly supply chain volatility index report.

The global index score rose to 0.57 in March from 0.09 in February – reaching its highest point since January 2023. An index value above 0 indicates supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized. GEP’s index tracks 27,000 business globally.

Reports of safety stockpiling were at the highest level in three years, as factories increased inventory buffers in response to maritime disruption at the Strait of Hormuz, higher transportation costs, and supplier price increases. Reports of stockpiling due to price or supply concerns were highest in Europe.

Uncertainty from the war pushed down purchases of raw material and intermediate goods in March. Meanwhile, item shortages hit a three-year high despite slowing input demand – with bottlenecks lowering availability of oil-derived products such as polymers, PVC, and rubber.

Surging oil prices pushed transportation costs to a four-year high. Asia has been especially hard-hit, as the region relies heavily on oil from the Middle East. Approximately 20% of the global oil supply transits the Strait of Hormuz – with over a hundred ships crossing the strait prior to the war. Ship crossings slowed to a trickle since March 1.

Labor shortages ticked up to a three-month high, to a level slightly above the historical average.

“The war is pushing up costs, triggering stockpiling and creating shortages across supply chains, but it has not yet escalated into a broad-based shock that materially slows global economic growth,” said Mukund Acharya, vice president, consulting, GEP. “Companies need to secure supply where it matters most while avoiding broad stockpiling that can lock in higher costs.”

Asia’s index score jumped to 1.16 from 0.40, the highest since August 2022, signaling significant supply chain pressures for Asian manufacturers.

North America’s index rose from -0.26 to 0.42 – a 39-month high signaling the strongest degree of pressure on North America’s supply chains since December 2022.

Europe’s index increased to 0.64 from 0.05 in February, reaching its highest level since January 2023.