GEP’s September report shows the highest level of global supply chain spare capacity since July 2023, indicating ongoing economic weakness
GEP’s Global Supply Chain Volatility Index (GSCVI) for September has dropped to its lowest point in 14 months, showing a value of -0.43, down from August’s -0.37.
This marks the third consecutive month of increased supply chain capacity, reflecting weaker global demand and declining factory purchasing activity.
The GEP Index, which is based on a monthly survey of 27,000 businesses, tracks key factors such as transportation costs, inventories and demand conditions.
September’s data points to a broad slowdown in procurement across major continents, with significant drops in North America, China and Europe. This suggests that economic conditions are faltering as we approach the final quarter of 2024.
Factory activity in North America saw its sharpest decline this year, with procurement levels reaching year-to-date lows.
The US manufacturing sector is feeling the strain of declining demand, which is reflected in a rise in vendor spare capacity. China’s factory procurement also fell for the third consecutive month, while Southeast Asian vendors, particularly in Vietnam, were hit hard by the devastation caused by Typhoon Yagi.
In Europe, the picture was bleak, with the region’s industrial recession deepening. As factories scaled back production, spare capacity grew.
The situation in the UK, however, presented a slight contrast. While Europe as a whole struggled, UK manufacturing maintained full capacity, offering a rare sign of stability amid the broader downturn.
Challenges ahead for global manufacturers
“September is the fourth straight month of declining demand and the third month running that the world’s supply chains have spare capacity, as manufacturing becomes an increasing drag on the major economies,” noted GEP’s Chief Operating Officer and Co-Founder, Jagadish Turimella.
The current situation highlights the need for manufacturers to rethink their strategies, especially given potential challenges on the horizon.
Jagadish Turimella, Chief Operating Officer and Co-Founder, GEP
“With the potential of a widening war in the Middle East impacting oil and the possibility of more tariffs and trade barriers in the new year, manufacturers should prioritise agility and resilience in their procurement and supply chains,” Jagadish added.
This comment underlines the growing risks manufacturers face, from geopolitical tensions to economic uncertainty, which could further disrupt global supply chains.
September supply chain trends
September’s report revealed several key trends:
- Demand: There was a significant downturn in global demand for raw materials and commodities. This decline affected major economies like the US, China and Germany, all of which reported slower procurement activity.
- Inventories: Stockpiling concerns remained below average, suggesting that businesses are not overly worried about price spikes or shortages.
- Material shortages: The shortage of raw materials dropped to its lowest level since January 2020. This is a sign of improved availability as global production slows.
- Labour shortages: Labour supply held steady, with reports of staff shortages remaining consistent with typical historical levels. This indicates that labour capacity is, for now, able to meet existing demand levels.
- Transportation costs: Transport costs continued their downward trend, falling to their lowest point since July 2023. This offers some relief to businesses managing their logistics expenses, though it also reflects the ongoing slowdown in global trade.
There are some significant regional variations in the Index
Regional variations in supply chain capacity
September’s GEP Index showed significant regional differences:
- North America: The index dropped to -0.78, the lowest in 15 months. This reflects a sharp increase in spare vendor capacity as the region’s manufacturing sector continued to slow.
- Europe: The European index also dropped to -0.74, a nine-month low, driven largely by Germany’s deepening industrial downturn. The country’s economic troubles continue to drag down the rest of the region.
- UK: In contrast, the UK’s index showed a slight increase to -0.12. This resilience reflects the UK’s ability to weather global economic challenges better than some of its European counterparts.
- Asia: The index fell to -0.36, the lowest level seen this year. China’s economic slowdown continues to be a key factor, with the added disruption of Typhoon Yagi, which severely impacted supply chains in Southeast Asia.
Understanding the GEP Volatility Index
The GEP Global Supply Chain Volatility Index is created in partnership with S&P Global and draws data from S&P Global’s PMI surveys, which cover 27,000 businesses worldwide. The index aggregates six sub-indices, tracking demand, inventory levels and supply chain pressures.
A positive value on the index indicates that supply chains are strained, leading to increased volatility. A negative value, like September’s -0.43, indicates underutilised supply chain capacity and reduced volatility.
With September’s value being the lowest in over a year, it is clear that global supply chains are experiencing a period of weakness and underuse, reflecting the broader economic slowdown.
