RED SEA ATTACKS DRIVE TRANSPORTATION COSTS TO 15-MONTH HIGH AND SAFETY STOCKPILING INCREASES SLIGHTLY, BUT NO SIGNS OF PANIC SO FAR

GEP GLOBAL SUPPLY CHAIN VOLATILITY INDEX

• Excess global supply chain capacity shrinks to its lowest level in nine months, showing the first signs of recovery in global manufacturing
• Demand for raw materials, commodities and components, while subdued, also trends higher in January
• Asian supply chains at their busiest in nearly a year as factory purchasing rebounds in region's key markets

CLARK, N.J., Feb. 13, 2024 /PRNewswire/ -- 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 — rose to -0.12 in January, from -0.44 in December, its highest level since last April, indicating that spare capacity across global supply chains has shrunk notably.

Although this is the ninth successive month of excess capacity at global suppliers, the downturn eased to its weakest since last April. The index suggests that underlying trading conditions may be starting to improve as recession and inflation fears fade and businesses prepare for a stronger 2024.

The most noteworthy impact from the Red Sea disruption was to transportation costs, which rose to a 15-month high in January, as commercial ships took the lengthier route around the Cape of Good Hope. There was also a slight pick-up in safety stockpiling, with reports from businesses of inventory building due to supply or price fears at the highest since last June. That said, they were well below the levels seen in 2021-2022 during the post-pandemic supply crunch.

Regionally, Asia's supply chains were at their busiest in nearly a year as factory purchasing activity in China, South Korea and India rebounded, suggesting manufacturers there are gearing up for growth. In a similar vein, suppliers to North America and Europe saw their spare capacity shrink during January. Less slack was also seen for the U.K.'s suppliers, who have experienced subdued demand for 19 consecutive months.  

"The world's supply chains got busier in January, and activity at our global manufacturing clients is ticking up," explained Daryl Watkins, senior director, consulting, GEP. 

"With input demand trending higher, led by Asia, signalling a return to positive growth in the coming months, it is imperative business keeps tamping down suppliers' price increases so inflation continues to trend down," said Watkins, summarizing the implications.