Article Summary
Supply chain leaders are building buffer stocks and increasing inventory levels in anticipation of further disruption, as manufacturers remain cautious about global trading stability despite falling oil prices and lower transportation costs.
- Manufacturers reported the highest backlog levels since late 2022, with supply chain bottlenecks expected to persist through at least Q3.
- Safety stockpiling increased to its highest level since January 2023, with procurement managers holding surplus materials to protect against shortages and inflation.
- Input demand remained strong in North America and Asia, while weakening in Europe, driving elevated supply chain activity and inventory replenishment.
- U.S. input purchasing rose at its fastest rate since April 2022, with Japan, China, and Vietnam leading accelerated purchasing expansions in Asia.
- Transportation costs remain elevated at their highest level since June 2022, despite June's sharp decline in global oil prices.
Global supply chain pressures remained elevated in June despite falling oil prices and lower transportation costs, reflecting uncertainty surrounding the U.S.-Iran ceasefire, as outlined in GEP’s GEP Global Supply Chain Volatility Index.
“The rise in stockpiling and persistent order backlogs point to one clear conclusion: businesses still don't trust the global trading environment to remain stable," says John Piatek, VP, consulting, GEP. "Despite lower oil prices and easing transportation costs, companies continue buying ahead because they expect further disruption. While this is encouraging for the global economy in the near term, it also shows manufacturers remain very cautious and are planning for more disruption in international trade."
Key takeaways:
· Reports from manufacturers of backlogs rising due to shortages of critical inputs were their highest since late 2022. The data suggests supply chain bottlenecks are likely to persist into at least Q3 as businesses wait for materials needed to complete customer orders.
· To guard against further disruption, manufacturers continued building buffer inventories in June. Reports of safety stockpiling increased again and remained at their highest level since January 2023.
· Demand for raw materials, commodities and intermediate goods remained strong across North America and Asia, reinforcing expectations that supply chain activity will stay elevated in the coming months as inventories are replenished and existing orders are fulfilled. In contrast, input demand weakened across Europe.
· Purchasing of raw materials, commodities and intermediate goods required by manufacturers to produce remained strong in June. North America and Asia were the principal drivers of this strength as European factories retrenched. In the United States, input buying rose at its fastest rate since April 2022. Japan, China and Vietnam were the Asian markets which saw accelerated purchasing expansions.
· Reports of stockpiled materials rising due to price or supply concerns rose once again in June and were the highest since January 2023, signaling a sustained uplift since the Middle East war began. The data suggest that procurement managers around the globe are holding surpluses to protect against shortages and inflation.
· The items in short supply indicator decreased in June, indicating some dissipation of shortages across the globe. That said, supply issues remained high by historical standards, with the underlying index recording well above its long-term average. Notably, backlogs of work have risen sharply due to inadequate item availability.
· Manufacturing workforces are not inhibiting capacity, as reports of backlogs rising due to labor shortages were aligned with historically average levels.
· With June seeing a sharp decline in global oil prices, the transportation cost indicator subsequently fell. However, excluding April and May, transportation costs were their greatest since June 2022 and still high by historical standards.
