GEP: Weak demand and spare capacity persist in global supply chain

14 September 2023 Consulting.us 2 min. read
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August was the 14th consecutive month of weak demand in GEP’s Global Supply Chain Volatility Index – which tracks demand conditions, shortages, transportation costs, inventories, and backlogs.

The index rose marginally to a score of -0.18, up from -0.50 in July, indicating sustained idle capacity at global suppliers amid a brittle economic environment. 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 raw materials, commodities, and components continued to decline, with little improvement seen at all in 2023. Conditions were most fragile in Europe, where demand continued to fall significantly and recession risks appear strongest. Demand also fell considerably in North America in August, indicating a slowing economy.

Demand conditions were strongest in Asia, driven by a strong increase in purchasing in India, Indonesia, and Vietnam.

GEP: Weak demand and spare capacity persist in global supply chain
Global businesses continued to demonstrate little appetite for building up inventories, while materials shortages were in line with historically normal levels.

Labor shortages had little impact on companies’ abilities to meet global demand in August, though manufacturers in North America and Europe indicated some renewed issues with staff availability.

After reaching their lowest point since January 2016 last month, transportation costs ticked up in August amid higher oil prices.

“Our data shows that we're currently on a fine line hovering between recession and stagnation,” Neha Shah, president, GEP, said. “Despite many months of excess global supply and subdued demand, companies can expect rising costs from petrochemicals industries, shortages of certain commodities, including sugar, rice, and wheat, and also wage pressures in some sectors because of the effective collective bargaining by employees.”