Business See Safety Stock Building Rise

January 19, 2023

The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs — shows declining demand for raw materials, commodities, and other components needed to provide finished goods and services in December, reflecting the growing risk of a recessionary period ahead.

Additionally, more businesses are safety stockpiling inventories, particularly in Europe and North America, due to a resurgence in COVID-19 infections in China and increased concerns about future supply and pricing, partly reversing destocking efforts seen in the prior six months.

As a result of greater safety stockpiling and worsening of labor shortages, the GEP Global Supply Chain Volatility Index rose — up from 1.15 in November to 1.61 in December — halting the improvements in the world’s supply chains, which began in the summer of 2022.

Commenting on the latest results, John Piatek, GEP’s vice president of consulting, said: “We are shifting from a sellers’ to a buyers’ market, and companies should be pushing back hard on all price increases from their suppliers, which will continue to drive down inflation. Falling demand signals the increasing likelihood of a global recession in the first half of 2023.”

The key findings from December’s report:

DEMAND: Demand for components, raw materials, commodities and any other items companies need to provide their goods and services declined further in December, especially in North America.

INVENTORIES: Global business reports of safety stockpiling are up since November, which is a key factor behind December’s increase in GEP’s Global Supply Chain Volatility Index.

LABOR SHORTAGES: Companies report an uptick in labor shortages, causing supplier capacity to be stretched.
MATERIAL SHORTAGES: Global supply shortages are at their lowest level since September 2020 as suppliers continue to adjust to market conditions. Easing demand has reduced competition for items.

TRANSPORTATION: Transportation costs are at their lowest in over two years, highlighting weaker pressures on shipping, train, air and road freight.

REGIONAL SUPPLY CHAIN VOLATILITY: Supply chains feeding into Europe remain the most stretched, compared to Asia and North America, in December. A value above 0 indicates that supply chain capacity is being stretched and supply chain volatility is increasing. The further above 0, the greater the extent to which capacity is being stretched.

Terms of Use | Copyright © 2001 - 2023 CONSTITUENTWORKS SM  CORPORATION. All rights reserved. | Privacy Statement