August saw global supply chains facing a downturn in demand, marking the strongest contraction since December 2023, according to GEP's Global Supply Chain Volatility Index.
Meanwhile, manufacturing hubs around the world have been slowing down as economic conditions continue to worsen.
As the second consecutive month of underutilised capacity across global supply chains, August also witnessed the lowest input demand in eight months. Suppliers across North America, Asia and Europe reported widespread slowdowns.
In North America, suppliers faced a rise in excess capacity, with the lowest demand in eight months.
US factories, in particular, showed significant declines, with purchasing activity dropping and spare capacity reaching its highest level since June 2023. GEP's data painted a bleak picture for North America, with conditions across the region's economies falling below average, indicating a challenging near-term outlook.
Asia, which experienced a strong first half of 2024, began to see cracks in its supply chains. China, which had been a major player in the global procurement scene, reported a sharp decline in purchasing, leading to excess capacity. While India showed resilience, China’s slowdown overshadowed the region’s overall performance.
Europe, on the other hand, saw its manufacturing recession deepen further, with Germany and France at the heart of the continent’s struggles.
Factories in these two powerhouses experienced significant declines in demand, further exacerbating Europe's industrial slowdown. However, the UK stood in contrast, with manufacturers nearing full utilisation of their inventories.
The August report also revealed that global demand for key raw materials, commodities and components such as semiconductors had dropped at its fastest rate so far in 2024.
Both the US and China, the world’s two largest economies, alongside major manufacturing hubs like Germany, reported significantly lower procurement activity.
Global inventories, particularly safety stockpiles, saw the steepest reduction since March. Companies across the world were cutting back on stockpiling, aiming to save on costs amid the softening economic environment.
As firms focused on lean inventory management, reports of rising inventories due to supply chain or pricing concerns were well below historical averages.
“What is most concerning in our August data is that manufacturers are aggressively drawing down their inventory, suggesting they're preparing for a sustained soft patch," - Neha Shah(President and Co-Founder of GEP Worldwide)
She adds that to stave off a deeper economic slowdown, "manufacturers need to see interest rates lowered and for the US, China and the EU to avoid raising tariffs and trade barriers."
One bright spot in the report was the continuing fall in material shortages, with reports hitting their lowest point since January 2020.
As demand softened, vendors saw their stock levels recover, easing the supply chain constraints that had plagued many sectors earlier in the year.
Labour shortages were also less of a concern in August. Reports of manufacturers struggling with backlogs due to staffing issues remained close to long-term averages, indicating that the current labour force was mostly able to meet demand.
This steadiness in labour availability points to a balanced workforce, though ongoing economic volatility could still impact employment levels in the future.
Transportation costs, which had risen sharply in recent months, began to ease slightly in August.
Though still above their long-term average, these costs are now cooling, providing some relief to businesses that have been grappling with rising logistics expenses. This moderation in costs could help offset some of the broader economic challenges faced by global manufacturers.
The GEP Global Supply Chain Volatility Index is produced through a collaboration between S&P Global and GEP.
The index draws on S&P Global’s PMI surveys, which cover over 27,000 companies worldwide. It is based on a weighted aggregation of six sub-indices derived from PMI data, as well as PMI Comments Trackers and Commodity Price & Supply Indicators.
A positive value in the index suggests strained supply chain capacity, leading to increased volatility. A negative value, like the one seen in August, points to underutilised supply chain capacity and reduced volatility.
The lower the value, the more significant the underutilisation of capacity, reflecting the current downturn in global purchasing activity.
As global supply chains continue to face challenges, manufacturers are bracing for a tough second half of 2024. With interest rates, trade barriers and economic uncertainty weighing on markets, the coming months will be crucial in determining whether these trends deepen or reverse.
Shah’s call for policy action highlights the delicate balance that global economies must strike to avoid further weakening of supply chains.
Whether through reduced tariffs or lower interest rates, any positive economic signals could help reverse the downward trend and bring much-needed stability back to global supply chains.
Source: Supplychaindigital
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