The GEP Global Supply Chain Volatility Index, a key indicator of global demand, supplier capacity, transportation costs, inventories, and backlogs, has revealed a significant increase in spare capacity across supply chains in September. The index fell to -0.43, down from -0.37 in August, marking the greatest level of underutilized global supply chain capacity since July 2023.
The index is based on monthly surveys of 27,000 businesses worldwide and reflects the ongoing struggles faced by global manufacturers. Deteriorating demand is seen as the key driver behind this increase in spare capacity. September saw the weakest purchasing activity by factories so far in 2024, with all major continents experiencing a downturn in procurement. This trend signals challenging times ahead as global economies enter the final quarter of the year.
In North America, supplier capacity expanded further, as US manufacturers sharply reduced their purchasing volumes amid a slowdown in the economy. This downturn in factory orders contributed to a significant dip in the region’s index, which fell to -0.78, its lowest level in 15 months. Economic uncertainty ahead of the upcoming presidential election is also adding to the slowdown.
Across Asia, supply chain capacity reached a year-to-date high. The Chinese economy saw its procurement activity decline for the third consecutive month, further slowing the region’s index to -0.36. Typhoon Yagi, which severely impacted Southeast Asia, also disrupted supply chains in the region, particularly in Vietnam, where vendor activity was significantly affected.
Europe’s industrial sector continued to suffer from a broad recession, with the region’s index falling to -0.74, the lowest in nine months. The index highlights the pressures faced by European manufacturers, with high energy costs, competitive pressure from China, and a faltering eurozone economy compounding the difficulties. Germany, in particular, has been pulling down other economies in the region as its industrial sector struggles to recover.
The UK, however, showed some resilience compared to the broader global trend. The UK’s index rose marginally to -0.12 in September from -0.14 in August. This reflects some degree of recovery in the wake of post-election stability, which is providing a buffer against wider global economic challenges.
Key findings from September’s report show that global demand for raw materials and intermediate goods declined at a faster pace than in previous months, particularly in major economies such as the US, China, and Germany. Material shortages continued to ease, with the indicator for item shortages falling to its lowest point since January 2020. Labour shortages, however, remained a challenge, with manufacturers reporting typical levels of staff shortages affecting backlogs.
Transportation costs globally also dropped to their lowest since July 2023, contributing further to the spare capacity seen across supply chains.
Jagadish Turimella, president of GEP, commented: “September marks the fourth consecutive month of declining demand, with manufacturing becoming an increasing drag on global economies. Manufacturers must focus on resilience and adaptability as we look ahead to potential geopolitical risks and trade barriers in the new year.”
The next release of the GEP Global Supply Chain Volatility Index is scheduled for 8 a.m. ET, November 12, 2024. To learn more, visit www.gep.com.
