Why supply chains are preparing a buyer’s market for the end of 2023

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Declining inventory demand suggests the supply chain is shifting to a buyer’s market.

For the first time since June 2020, global supply chain capacity is underutilized, according to the GEP Global Supply Chain Volatility Index.

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Declining freight demand is a stand-in for economic conditions, but an improved pricing environment will favor retailers this year.

Volker Roelofsen, vice president of supply chain, said: “After months of aggressive inventory reductions by companies, there is now overcapacity in global supply chains, and buyers will have to wait until the second half of 2023. It has given us a great leverage to extract favorable prices and terms through 2024.” Consulting, GEP said in a statement. “The good news is that demand for corporate parts and raw materials has been subdued but stable, indicating that the central bank is doing well, at least so far, in dealing with the measured economic slowdown. ing.”

These trends have permeated the majority of this year. U.S. container sea freight imports fell 15% in April from a year earlier, marking the ninth straight month of decline, according to data from Panjiva. Textile and apparel imports fell 27% in April, improving from a 37% decline in March.

GEP has developed the Global Supply Chain Volatility Index to better measure volatility by monitoring demand conditions, material shortages, transportation costs, inventories and backlogs.

The index slipped below zero from 0.32 in March to -0.04 in April as retailers cleared excess inventories amid a ten-month slump in global demand. This is in stark contrast to what happened a year ago when the GEP was at 4.61, one of the highest levels of volatility he has had in his 20-year data.

GEP Global Supply Chain Volatility Index

Index since January 2020

Values ​​above zero indicate increasing volatility and exhaustion of supply chain capacity, while values ​​below zero do the opposite.

Europe appears to have the lowest volatility, with an index of -0.37, well below the December 2022 figure of 1.60. The UK also fell to -0.21 from 1.34 five months ago.

The North American volatility gap was -0.12 from 0.91 in December. In Asia, the index puts him at 0.06 after finishing 2022 with 0.17.

Another metric, the Logistics Manager Index (LMI), recently hit its lowest point in nearly seven years. In April, it decreased by 0.2 points from the previous month to 50.9, but further decreased from April 18 to 30 to 48.9. For context, numbers below 50.0 indicate that the logistics industry is shrinking.

Demand and shortage head in the right direction

Global demand for raw materials, goods and parts was -0.14 in April, better than -0.52 in December 2022, suggesting stability amid high interest rates and pressure on manufacturing. showing. The report noted that purchasing activity in Asia slowed as China’s post-lockdown recovery slowed, while demand conditions worsened across Europe in April.

The availability of critical components moved throughout the supply chain, such as groceries, metals and chemicals, continues to increase. Shortages for these items were at their lowest level since September 2020, with the index reaching 0.17 in April as lower demand eased bottlenecks and encouraged suppliers to replenish.

Global transportation costs have remained close to historically normal levels at -0.01, reflecting normalization of global supply chains and a notable reduction in strain on freight capacity. This compares to his year earlier (data has been available for him since 2005), when global logistics costs were at record levels.

For the first time since the start of the COVID-19 pandemic in February 2020, global corporate reporting on stockpiling due to future price and supply concerns fell below typical levels, with an index level of -0.08. there is Businesses are trying to clear excess inventory and adjust warehouses to meet the dire economic outlook, the report said.

Staffing levels and inputs are not putting pressure on production capacity

Jobs data provides further clues, with reported backlogs due to staff shortages remaining at historically normal levels of 0.03, far from the 0.6 the index showed in early 2022. This suggests that suppliers now have enough workers to process. their workload.

More good news is that a recovery in global commodity supplies has eased pressure on production capacity as firms can source the inputs they need to deliver their goods and services.

The GEP Global Supply Chain Volatility Index is calculated using a weighted sum of the z-scores of six sub-indices derived from S&P Global’s Purchasing Managers Index (PMI) data. Weight is determined by analyzing the impact of each component on supplier delivery times through regression analysis.

Three of the variables used are: Global Purchasing Volume Index of demand for JP Morgan materials and components. In case of item shortage, all item shortage indicator. Shipping price pressure indicator for shipping costs. The index also leverages the Manufacturing PMI Comment Tracker data to analyze three areas. Stockpiling due to supply and price concerns. The backlog of orders increased due to a shortage of personnel. and product shortage.

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