GEP: Excess capacity in global supply chains continues to grow

16 August 2023 1 min. read
More news on

Excess capacity in global supply chains rose for the fourth consecutive month in July, according to the GEP Global Supply Chain Volatility Index – which tracks demand conditions, shortages, transportation costs, inventories, and backlogs.

Global supplier spare capacity was nearly on par with its peak in the early stages of the Covid-19 pandemic in May 2020.

Growth in excess capacity drove the GEP index to -0.50 in July, down from -0.26 in June. An index value above 0 means supply chains are being stressed, while a value below 0 means supply chain capacity is being underutilized. The index reached a peak of 6+ points in late 2021.

Demand for commodities, components, and raw materials remained depressed, signaling a weakening of economic conditions. Europe is seeing the steepest downturn in demand by a fair margin, while North America’s demand conditions were less depressed in July than in June. This points to a potential divergence in the trajectories of economies on either side of the Atlantic.

North America also saw stockpiling tick up slightly in July, despite months of subdued demand.

GEP: Excess capacity in global supply chains continues to grow

“We're now in the 14th consecutive month of subdued demand across Europe, and our July data shows it's getting significantly worse across the continent, in contrast to North America,” said Jonathan Kinghan, vice president, supply chain consulting, GEP. “Our data does not indicate a 'soft landing' in Europe. As a result, companies have greater leverage to negotiate favorable terms from suppliers for 2024 and 2025."

Globally, materials shortages were at historically normal levels, while reports of backlogs due to labor shortages were historically low.

Global transportation costs fell further in July, reaching the lowest level since July 2016.