GEP’s Volatility Index fell for the first time this year to -0.32 in March, from February’s 10-month high of -0.08. While this does signal a pickup in the level of spare capacity at global suppliers, underlying data shows this was due to global manufacturers using up inventory surpluses, some of which were accumulated because of Red Sea and Panama Canal disruptions, and cutting back on stockpiling activity, with companies displaying a preference to clear stocks before placing bumper orders with their vendors.
“Global transportation costs fell to their lowest level since last December as the diminishing impact of the Suez Canal disruption led container rates to decline. Our data shows no discernable impact to the world’s supplies from either the Red Sea attacks or from reduced capacity on the Panama Canal, as businesses adjusted to longer delivery schedules,” according to GEP.
Key takeaways:
- Continuing the year-to-date trend, demand for raw materials, commodities and components continued to recover in March. Notably, Asia was the primary driver of this improvement, led by India and China, with factories across the region boosting their purchases of inputs by the strongest degree since December 2021. Given Asia’s importance to global production, this provides a strong indication of future growth for the wider manufacturing economy.
- Notably, North American suppliers experienced difficulties in meeting orders, as backlogs of work due to a lack of staff increased. This suggests a strong pipeline of orders for the coming months, which undermines the Fed’s expressed desire to cut interest rates, at least in the near-term.
- In Europe, the slowest decline in input demand for a year provides evidence of the continent’s industrial recession easing. However, the continued struggles of manufacturers in Germany remained a considerable drag.
- Global demand for raw materials, commodities and components edged closer to its long-term average in March, signaling recovery in the global manufacturing industry. Asia was the primary driver of this positive trend, with purchasing activity across the region rising at the strongest pace in over two years.
- There was a sharp reversal in global businesses’ inventories in March, partly reflecting the winding down of surpluses built up because of the Red Sea disruption. Reports of safety stockpiling were at their lowest since November 2019, before the pandemic.
- Reports of item shortages remained among the lowest seen in four years.
- There continued to be evidence of growing staffing capacity constraints in March, particularly in Europe and North America, as global reports of manufacturing backlogs rising because of labor shortages were their highest since last August.
- Global transport costs fell to their lowest in the year to date in March as the impact on supply chains from the Red Sea disruption receded.
