Supply chain has excess capacity for first time since early stages of pandemic

Global supply chain capacity in April was underutilized for the first time since June 2020, according to the GEP Global Supply Chain Volatility Index – which tracks demand conditions, shortages, transportation costs, inventories, and backlogs.

The index fell from 0.32 in March to -0.04 in April on the back of 10 months of depressed global demand. An index value above 0 means supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized. The GEP index reached a peak of over 6 points in late 2021 and stood at 4.61 in April 2022.

Global demand for inputs continues to remain subdued, especially in Europe. This is largely attributable to companies’ drawdown of their inventories and safety stocks as concerns toward inflation and supplier delivery times have eased.

"After months of companies aggressively destocking, there is now excess capacity in the world's supply chains, providing buyers with greater leverage to extract favorable prices and terms for the second half of 2023 and into 2024,” said Volker Roelofsen, vice president, supply chain consulting, GEP. “The good news is that companies' demand for components and raw materials, while subdued, is holding steady, indicating that central banks are, at least for now, successfully engineering a measured slowdown."

Reported material shortages were at their lowest point since September 2020, though poor availability continues to affect semiconductors and electrical items. As has been the case since the start of 2023, labor shortages are having little adverse effect on suppliers.

Supply chain pressures have also eased in Asia – with the least amount of strain since August 2020 – as the economic rebound following China’s Covid-19 reopening has petered out.