Transportation costs and stockpiling fell in March because of decreases in container rates – despite Red Sea and Panama Canal disruptions – while orders placed with Asian suppliers ramped up, according to the GEP Global Supply Chain Volatility Index.
Based on a monthly survey of 27,000 businesses, the leading indicator tracks demand conditions, shortages, transportation costs, inventories and backlogs.
The newly released data from the April 2024 report reveals Asia was the primary driver of increased demand for raw materials, commodities and components, led by India and China, with factories across the region boosting their purchases of inputs by the strongest degree since December 2021.
“In March, orders placed with Asia’s suppliers ramped up, which is a strong signal of accelerating growth in manufacturing in the coming months,” says Roopa Makhija, president and co-founder at GEP.
“In North America, suppliers are reporting difficulties meeting orders due to staff shortages, signalling capacity constraints, even though input demand declined slightly. This does mean that manufacturers have strong pipelines which undermines the Fed’s expressed desire to cut interest rates, at least in the near-term.”
The Index fell for the first time this year to -0.32 in March, from February’s 10-month high of -0.08.
A value above 0 indicates that supply chain capacity is being stretched and supply chain volatility is increasing, while a value below 0 indicates that supply chain capacity is being underutilised and reducing supply chain volatility.
The further below 0, the greater the extent to which capacity is being underutilised.
GEP says that the current Index signals a pickup in the level of spare capacity at global suppliers, with underlying data suggesting this is due to global manufacturers using up inventory surpluses.
Some of this surplus was accumulated because of Red Sea and Panama Canal disruptions, plus cutting back on stockpiling activity, which suggests a preference to clearing stocks before placing bumper orders with vendors.
Elsewhere, North American suppliers experienced difficulties in meeting orders due to a lack of staff, Europe saw the slowest decline in input demand due to the continent’s industrial recession easing, and the continued struggles of manufacturers in Germany remained a considerable drag.
Global transportation costs fell to their lowest level since last December as the diminishing impact of the Suez Canal disruption led container rates to decline.
GEP’s data shows no discernible impact to the world’s supplies from either the Red Sea attacks or from reduced capacity on the Panama Canal, as businesses adjusted to longer delivery schedules.
Key Findings:
DEMAND: Global demand for raw materials, commodities and components moved closer to the long-term average in March, which signals recovery in the global manufacturing industry. Asia was the primary driver of this positive trend, due to purchasing activity across the region rising at the strongest pace in over two years.
INVENTORIES: The inventories of global businesses saw a sharp reversal in March, which reflects the winding down of surpluses that were built up because of disruptions in the Red Sea. Reports of safety stockpiling were at their lowest since November 2019, before the pandemic.
MATERIAL SHORTAGES: Reports of item shortages remained among the lowest seen in four years.
LABOUR SHORTAGES: Evidence of growing staffing capacity constraints continued, particularly in Europe and North America. Global reports of manufacturing backlogs rising because of labour shortages were their highest since last August.
TRANSPORTATION: Global transport costs fell to their lowest in the year to date as the impact on supply chains receded following Red Sea disruptions
Regional Variations:
NORTH AMERICA: Index fell to -0.31, from 0.17, signalling a renewed increase in spare capacity following the uptick in pressure in February. This reflected a reduction in inventories, alleviating some strain on the region’s vendors.
EUROPE: Index fell to -0.62, from -0.41. Albeit down on the month, the index is much higher than it was at the end of 2023. Still, recession in Germany’s manufacturing economy is weighing on the continent.
UK: Index rose further in March to -0.17, from -0.34, its highest level in a year and signalling a shrinking amount of spare capacity across the UK’s supply chains.
ASIA: Index saw little change at -0.07, down only narrowly from -0.02. Overall, the index points to Asian suppliers operating at close to full capacity as regional input demand grew at the fastest pace for over two years.
To learn more about the GEP Volatility Index, see here.
