General Business

Global Raw Material Demand Lessens as Spare Capacity Rises in May

The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs — indicates that global suppliers now have the greatest level of spare capacity since the height of the COVID-19 pandemic three years ago.

The index, provided by Clark-based GEP – a global provider of supply chain solutions – is based on data derived from a monthly survey of 27,000 businesses, fell further below zero in May to -0.28, down from -0.04 in April, its lowest level since May 2020. The difference compared to a year ago, when the index recorded 4.72 — one of the highest levels of stress on global supply chains in two decades of data — is striking.

Global demand for raw materials and components worsened during May, especially across Europe, showing fresh signs of economic weakness. Falling demand for raw materials and improved supply has drastically reduced the need for businesses to stockpile items, with companies continuing to de-stock after building up huge excesses of inventory between 2020 and 2022.

Most telling, for the first time since August 2020, suppliers in Asia saw spare capacity rise. GEP’s Supply Chain Volatility Index for Asia had avoided falling below zero up until May because of the bump in economic activity following China’s reopening. It has since petered out and suppliers have caught up with their backlogs. In Europe and North America, vendor capacity went underutilized by an even larger degree than in April.

Commenting on the May data, Pramod Gupta, vice president, supply chain consulting, GEP, said: “As a result of the gradual managed slowdown in economies worldwide, companies continue to aggressively draw down inventories as they anticipate negotiating lower prices going forward. We expect this buyers’ market to continue through at least the third quarter.”

May 2023 Report Highlights

  • DEMAND: Demand for raw materials, commodities and components weakened broadly in May. Purchasing activity in Europe remains the most depressed, although the North American trend worsened since April.
  • INVENTORIES: Global businesses continue to demonstrate their lack of desire to stockpile items, with reports of firms building safety buffers running at historically typical levels.
  • MATERIAL SHORTAGES: Reports of item shortages continue to fall and are now at their lowest level since August 2020, sitting just above their long-term average.
  • LABOR SHORTAGES: Staffing capacity across global supply chains is sufficient to cope with current workloads.
  • TRANSPORTATION: Global transportation costs are now running below historically average levels. This follows on from the rapid normalization seen throughout 2022 and indicates more competitive pricing of logistics from haulers and cargo handlers.
  • REGIONAL SUPPLY CHAIN VOLATILITY: Global supply chain volatility in Europe and North America is falling markedly. Suppliers to Asian markets are seeing spare capacity for the first time since August 2020.

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