Suppliers’ Spare Capacity During July Came Close to May 2020 Levels

The GEP found that excess capacity across global supply chains rose sharply during July 2023 amid weak global demands and sustained warehouse destocking, coming close to May 2020 levels when the COVID-19 pandemic began, which indicates a weakening global economy.

The GEP Global Supply Chain Volatility Index — an indicator tracking demand conditions, backlogs, inventories, shortages and transportation costs based on a monthly survey of 27,000 businesses — fell for the sixth consecutive month during 2023 in July to -0.50 from -0.26. An index score below zero indicates the global supply chain capacity is being underutilized.

Europe saw the biggest downturn in demand during July while purchasing activities in Asia only fell slightly. North American demand conditions improved, hinting at a potential divergence opening up between major markets.

In Asia, the regional supply chain volatility index fell to a three-year low of -0.31 in July. North America saw its supply chain volatility improve from -0.85 to -0.37, indicating a steady rise in excess capacity. Europe was hit incredibly hard during July after its volatility index sank to -1.07, the region’s lowest level since the 2008-2009 financial crisis. This, in turn, hurt the U.K., whose index fell to -1.01 from -0.66.

Meanwhile, Global transportation costs hit their lowest level since January 2016. Supply shortages have also slowed down after item scarcity aligned with historically normal levels. And, reports of backlogs caused by labor shortages hit historic lows in July 2023.

“We’re now in the 14th consecutive month of subdued demand across Europe, and our July data shows it’s getting significantly worse across the continent, in contrast to North America. Our data does not indicate a ‘soft landing’ in Europe,” said Jonathan Kinghan, vice president of Supply Chain Consulting at GEP. “As a result, companies have greater leverage to negotiate favorable terms from suppliers for 2024 and 2025.”

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• Source: https://www.supplychainbrain.com/articles/37913-july-global-supplier-capacity-on-par-with-covid-19-pandemic-levels