The GEP Global Supply Chain Volatility Index, a leading indicator of sector conditions, has revealed a significant shift in global suppliers' spare capacity. The latest data indicates that suppliers currently hold the highest level of spare capacity since the peak of the COVID-19 pandemic three years ago.
Pramod Gupta, vice president, supply chain consulting, GEP, said: "As a result of the gradual managed slowdown in economies worldwide, companies continue to aggressively draw down inventories as they anticipate negotiating lower prices going forward. We expect this buyers' market to continue through at least the third quarter."
Raw materials, commodities, and components experienced weakened demand globally. Purchasing activity in Europe demonstrated the most significant decline, although the North American trend worsened compared to April.
Businesses across the globe continued to exhibit reluctance to stockpile items, with reports of firms building safety buffers in line with historically typical levels.
Instances of item shortages continued to go down and reached their lowest level since August 2020, sitting just above the long-term average.
Staffing capacity within global supply chains remains sufficient to handle existing workloads.
Global transportation costs are presently running below historically average levels, following the rapid normalisation witnessed throughout 2022. This suggests more competitive pricing from haulers and cargo handlers in the logistics sector.
REGIONAL SUPPLY CHAIN VOLATILITY:
Supply chain volatility in Europe and North America is experiencing a significant decline. Suppliers serving Asian markets are encountering spare capacity for the first time since August 2020.
Based on the monthly survey of 27,000 businesses, the GEP Global Supply Chain Volatility Index dropped further into negative territory in May, reaching -0.28 compared to April's -0.04. This represents the lowest level since May 2020, highlighting a contrast to the supply chain pressures experienced just a year ago, when the index soared to 4.72, one of the highest levels in two decades of data.
During May, global demand for raw materials and components deteriorated, particularly across Europe. The drop in demand for these resources, along with with improved supply, has significantly cut the need for businesses to stockpile items. Many companies are actively reducing their inventories after building up excesses between 2020 and 2022.
For the first time since August 2020, the GEP's Supply Chain Volatility Index for Asia crossed below zero, suggesting the easing of economic activity following China's reopening. In Europe and North America, vendor capacity remained underutilised to an even more than in April.