Supply chain volatility index drops to -0.41 globally in Oct 2023

Coupled with October’s downturn in demand for raw materials, components, and commodities, this shows rising slack in global supply chains, according to a report by S&P Global and the GEP.

A key finding from October’s report was the strongest rise in excess capacity across Asian supply chains since June 2020. Sustained weakness in demand, coupled with falling pressures on factories in Asia, indicates that the global manufacturing recession has further to run. With the exception of India, which continues to perform strongly, large economies in the region, such as Japan and China, are losing momentum.

Suppliers in Europe continue to report the largest level of spare capacity. In fact, lower levels in GEP’s supply chain index for the continent have, for the most part, only been seen during the global financial crisis between 2008 and 2009, highlighting sustained weakness in economic conditions across the continent. Western Europe, particularly Germany’s manufacturing industry, is a key driver behind the region’s deterioration.

A relatively bright spot is North America, where supply chains have excess capacity, but to a much lesser extent than elsewhere as the US economy continues to display its resilience, in stark contrast to Europe.

Demand for raw materials, components, and commodities remains depressed, although the downturn seems to have stabilised. There are still no signs of conditions improving, however, as global purchasing activity fell again in October at a pace similar to what was seen since around mid-year.

With demand falling, data shows another month of destocking by global businesses, signalling cashflow preservation efforts. Reports of item shortages remain at their lowest since January 2020.

Shortages of workers are not impacting global manufacturers’ capacity to produce, with reports of backlogs due to inadequate labour supply running at historically typical levels. Global transportation costs held steady with September’s level, although oil prices have declined in recent weeks.

The supply chain volatility index for North America fell to -0.34, from -0.30. This remains much softer than the global average and continues to suggest the US economy is poised for a soft landing.

The index for Europe rose to -0.90, from -1.01, but still remains at a level that is indicative of considerable economic fragility.

The index for the UK edged slightly higher to -0.93, from -0.98. Still, the data point to a substantial rise in excess capacity at suppliers to UK markets.

Notably, the index for Asia dropped to -0.38, from -0.20, highlighting the biggest rise in spare supplier capacity in Asia since June 2020 as the region’s resilience fades.

ALCHEMPro News Desk (NB)