Global supply chains saw a further drop in activity in May, with GEP’s Supply Chain Volatility Index falling to –0.46, down from –0.39 in April. The data, drawn from a monthly survey of 27,000 firms, highlights a growing disconnect between procurement activity and production, as companies weigh trade risks and cost pressures.
Asia was the largest drag on global activity. Purchasing by regional manufacturers, particularly in China, declined for a second month—marking the steepest retrenchment since late 2023. The region’s index fell to –0.40, reflecting idle capacity and restrained input buying amid continued trade tensions.
North America Builds Buffers, but Utilization Lags
In North America, the index edged up to –0.24, driven by a rise in raw material and commodity purchases in the U.S. as firms built inventory to hedge against expected price increases. Still, supply chains remain underused, weighed down by soft demand in Canada and Mexico.
Europe’s reading held near flat at –0.30. While still in negative territory, the figure is stronger than the two-year average, supported by fiscal stimulus in Germany. In contrast, the UK remained weak, with an index of –0.97. British manufacturers continued to retrench amid tepid demand and tight financial conditions.
Demand and Inventory Trends Diverge
GEP’s data shows global demand for components and commodities remained subdued. Asia saw the sharpest pullback, while Europe maintained lean inventory strategies. In contrast, North American firms continued to build stock, with safety buffers exceeding long-term averages for the second consecutive month.
Material shortages were limited. GEP’s indicators showed healthy global availability of critical inputs. Labor constraints ticked up slightly but remained close to typical levels. Transportation costs stayed broadly in line with historical averages, with no significant shifts in global freight pricing.
GEP’s index, developed with S&P Global, aggregates six weighted sub-indices—demand, inventories, shortages, backlogs, prices, and transport. Positive values suggest strained capacity; negative values point to underutilization. May’s reading suggests supply networks have room to absorb shocks, even as regional frictions persist.
Policy Risk, Not Demand, Is Driving Volatility
While the index shows slack across global supply chains, that capacity doesn’t automatically translate into resilience. Trade policy remains the key variable. Recent surges in spot container rates between China and the U.S., despite weak demand, reflect tariff-driven front-loading—not structural recovery. Companies that treat capacity as a buffer must also account for fast-moving policy risks. Static inventory strategies, even if well-stocked, may fall short without corresponding agility in logistics and sourcing decisions.
