Key Insights: GEP Global Volatility Index July 2024
The GEP Global Volatility Index, which is a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses, showed supply chains across the globe were getting busier and their capacity was stretched across suppliers worldwide.
At 0.13, the index was little changed from May’s 14-month high of 0.21.
At the forefront of this growth spike was the supply chain activity in Asia, which saw input demand jump as factory activity in major manufacturing and exporting economies - led by China, Taiwan, Vietnam and India - accelerated.
It was a more turbulent month for those suppliers in North America. Unlike Asia, which has seen steady month-over-month growth since April, those in North America have oscillated between under and over-utilised capacity.
In June, factory input demand fell slightly, with suppliers experiencing reduced demand. Despite this, on average since the start of this year, North American vendors have generally been operating at full capacity.
Over in the European market, it is still operating with some slack as factory purchasing activity across the continent remains subdued. This suggests the region’s manufacturing recovery still has a way to go, though conditions have vastly improved compared with the end of last year.
There is an early warning sign of potential overheating ahead in global transportation costs, which rose to their highest level since October 2022 in June, as strengthening activity across supply chains globally led to higher shipping and container rates. For now, reports of safety stockpiling remain low, which suggests the market is well-placed in a ‘goldilocks’ zone and stress levels are subdued.
“Asian manufacturers are gaining momentum, which, if sustained into the second half of the year, will mean a return of increasing costs and price pressures for global companies,” says Amol Jawale, vice president, consulting, GEP.
“Now is the perfect time for a company’s procurement to lock in pricing with key suppliers for 2025.”
- Global suppliers report capacity pressures, with index in positive territory for a second consecutive month.
- Asian manufacturing growth accelerating in China, Taiwan, Vietnam and India.
- In contrast, demand at North American suppliers fell slightly because of lower orders, indicating a tightening economy.
- Transportation costs rise to a 20-month high, as greater activity drives up shipping and container rates.
Key findings in June's GEP Global Supply Chain Volatility Index
DEMAND: Global demand for raw materials, commodities and components is now trending broadly level with its long-term average, indicating that global manufacturing has moved toward an upswing in the business cycle. Asia remains at the forefront of this upturn, led by India, China, Taiwan and Vietnam.
INVENTORIES: The inventory cycle has stabilised, with firms neither building up stocks excessively nor aggressively destocking to improve cash flow and cut costs.
MATERIAL SHORTAGES: Global reports from businesses of items in short supply remain anchored at historically typical levels.
LABOUR SHORTAGES: As was the case in May, reports from global suppliers of an inability to meet orders due to staff shortages were more common than seen historically on average. This suggests capacity expansion is required to sustainably meet current and future demand.
TRANSPORTATION: Global transportation costs rose to a 20-month high in June, with shipping and container rates under pressure because of increasing supply chain activity.
Regional variations in the GEP Global Supply Chain Volatility Index
NORTH AMERICA: Index fell to -0.11, from 0.09, down slightly from May’s three-month high. The index has fluctuated between positivity and negativity this year but signals full capacity utilisation on average in 2024.
EUROPE: Index unchanged from May’s 14-month high of -0.13. There continues to be some slack across Europe’s manufacturing sector, although it is much reduced from 2023 levels.
UK: Index rose to 0.49, from 0.15, signalling the strongest capacity pressures since January 2023.
ASIA: Index rose further in June to 0.35, from 0.19, a 16-month high, as Asian supply chains became busier amid strengthening factory activity in major markets such as China, Vietnam, Taiwan and India.
How does the GEP Global Supply Chain Volatility Index function?
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.
What do the values in the GEP Global Supply Chain Volatility Index signify?
A positive value 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.
The index is published monthly, with the June survey available for review here.
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