Global Supply Chain Volatility Index shows excess supply chain capacity shrinking

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Changes in the global supply chain are showing the first signs of recovery in global manufacturing and renewed demand for raw materials, commodities and components, a new report shows.

According to the GEP Global Supply Chain Volatility Index, indicators rose in January to -0.12 from -0.44 in December, the index’s highest level since April of 2023. That increase indicates that spare capacity across the global supply chain has shrunk, officials said. The Index is based on demand conditions, shortages, transportation costs, inventories and backlogs based on a survey of 27,000 businesses, the index’s authors said. An index of anything greater than zero indicates the supply chain capacity is being stretched, GEP said. The further above zero, the more stretched the supply chain becomes. An index below zero indicates the supply chain capacity is underutilized.

Officials said the index is the ninth successive moth of excess capacity at global suppliers and suggests that underlying trading conditions may be showing some signs of improvement as recession and inflation fears begin to fade and businesses prepare for a stronger year.

The report found that transportation costs were impacted by disruptions in the Red Sea because ships were forced to take the lengthier route around the Cape of Good Hope, causing costs to rise. Additionally, the report found there was a slight pick-up in safety stockpiling, with businesses reporting inventory building because prices or supplies were well below levels seen in 2021-2022 during the post-pandemic supply crunch.

“The world’s supply chains got busier in January, and activity at our global manufacturing clients is ticking up,” Daryl Watkins, senior director, consulting, at GEP, said. “With input demand trending higher, led by Asia, signaling a return to positive growth in the coming months, it is imperative business keeps tamping down suppliers’ price increases so inflation continues to trend down.”