Key Insights: GEP Global Volatility Index December 2024

The GEP Global Supply Chain Volatility Index – a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses – signalled the lowest level of spare capacity in global supply chains seen for five months in November, as the index rose from -0.39 to -0.20.

Driving this increase was Asia, as suppliers to the region reported stretched capacity for the first time since July. This was caused by a surge in procurement activity by the region's manufacturers, especially in China, as new orders rebounded sharply.

This could reflect greater production requirements stemming from domestic stimulus measures, as well as from international clients, who may be stockpiling to mitigate the risk of higher import costs under the Trump administration.

Only India reported a greater rise in raw material purchases than China in November. Preparations to ramp up production further were evidenced by GEP's data showing factory procurement activity across Asia rising at its fastest pace for three-and-a-half years.

In North America, reports of safety stockpiling were at their most pronounced since July, highlighting that procurement managers have already implemented changes to their inventory strategies as a result of the incoming US administration's public commitment to impose significant tariffs.

Subsequently, a pickup in activity across North American supply chains resulted in fewer vendors with idle capacity. In fact, GEP's index tracking the region's supply chain activity hit a four-month high in November.

Meanwhile, in Europe, suppliers feeding this part of the world saw spare capacity rise further – a contrast to elsewhere – primarily because of the continent's worsening industrial recession. Factories went deeper into retrenchment mode, according to GEP's data, as demand for inputs from manufacturers here was its weakest since December 2023. Germany continues to be at the forefront of this prolonged and significant slowdown.

"In November, US manufacturers, particularly in the consumer goods sector, increased their safety stocks to help blunt any immediate tariff increases," says John Piatek, Vice President at GEP.

"In contrast, Chinese manufacturers are getting busier as a result of government stimulus and growth in exports, led by automotives and technology products. Strategically, many global companies have a wait-and-hope approach, while simultaneously planning to remake their global supply chains to respond to a tariff and trade war in 2025 and beyond."

What supply chains looked like in November

DEMAND: Demand for raw materials, commodities and components is rising after a sustained period of weakness. Although GEP's tracker remains slightly below its long-term average, it picked up again in November. This was principally driven by Asia, as procurement activity surged due to companies, particularly in China, preparing to ramp up production to meet new orders from clients.

INVENTORIES: The stockpiling indicator, which measures to what extent companies are building safety buffers into their inventories to mitigate against risks such as shortages or price rises, ticked higher in November. Most notable was a rise in safety stockpiling from manufacturers in both North America and Asia.

MATERIAL SHORTAGES: The item shortages indicator continued to show robust global supply levels in November, with the frequency at which businesses reported poor availability remaining historically low.

LABOUR SHORTAGES: Reports of manufacturers' backlogs rising due to staff shortages were at historically typical levels during November. Therefore, the data does not suggest that labour capacity is a limiting factor for goods producers.

TRANSPORTATION: The transportation cost indicator remained anchored at its long-term average value in November.

Regional variations in the GEP Global Supply Chain Volatility Index

NORTH AMERICA: Index rose to -0.36 from -0.72, its highest level since July, signalling the smallest amount of slack in the region's supply chains in four months. Stockpiling activity ticked higher in North America in November.

EUROPE: Index fell to -0.72, from -0.52, close to its lowest level year-to-date, signalling a worsening of the continent's industrial recession.

UK: Index ticked up to -0.12, from -0.40. However, input demand at UK factories worsened in November, indicating spillover effects from weakness in mainland Europe.

ASIA: Index rose to a four-month high of 0.15, from -0.20. Crucially, the index signalled stretched capacity for the first time since the summer as a surge in procurement activity, particularly in China, squeezed vendors.

How does the GEP Global Supply Chain Volatility Index work?

The GEP Global Supply Chain Volatility Index is a collaborative effort between S&P Global and GEP.

It draws from S&P Global's PMI surveys, which are distributed to 27,000 companies worldwide, a weighted aggregation of six sub-indices derived from PMI data, PMI Comments Trackers and PMI Commodity Price & Supply Indicators provided by S&P Global.

A positive value in the GEP Global Supply Chain Volatility Index indicates strained supply chain capacity, leading to increased volatility. The higher the value, the greater the strain on capacity.

Conversely, a negative value suggests underutilised supply chain capacity, resulting in reduced volatility. The lower the value, the greater the degree of underutilisation of capacity.

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