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.