GEP: Supply Chains Under Pressure as Demand Surges in Asia

The GEP Global Supply Chain Volatility Index, a key measure of global supply chain activity, signals a notable shift in November as spare capacity reached its lowest level in five months.

Rising from -0.39 to -0.20, the index highlights renewed pressure on supply chains, particularly driven by increased procurement activity in Asia and stockpiling trends in North America.

Asia’s procurement surge pushes supply chains to capacity

Asia was at the forefront of supply chain shifts in November as manufacturers ramped up production to meet stronger demand. This uptick was particularly pronounced in China, where new orders rebounded sharply following months of sluggish activity.

GEP’s data suggests that domestic stimulus measures likely played a significant role in boosting demand, alongside an increase in international orders preparing for potentially higher import costs under the incoming Trump administration.

India outpaced China in raw material purchases for the month, as its manufacturing sector prepared for further production increases. Across the broader region, factory procurement activity rose at its fastest rate in three-and-a-half years. Suppliers face stretched capacity for the first time since July, reflecting Asia’s strengthening industrial momentum.

North America prepares for tariffs with stockpiling

In North America, manufacturers reported a sharp increase in safety stockpiling as they continue to brace for potential tariff hikes under Donald Trump.

The GEP index for the region rose to -0.36, up from -0.72, marking its highest level since July. This shift indicates tighter supply chains with fewer idle suppliers, particularly as procurement managers adjust inventory strategies to mitigate risks.

John Piatek, Vice President at GEP, explains: “In November, US manufacturers, particularly in the consumer goods sector, increased their safety stocks to help blunt any immediate tariff increases.

"In contrast, Chinese manufacturers are getting busier as a result of government stimulus and growth in exports, led by automotive and technology products. Strategically, many global companies have a wait-and-hope approach, while simultaneously planning to remake their global supply chains to respond to a tariff and trade war in 2025 and beyond."

Rising activity across North American supply chains contrasts sharply with Europe, where conditions continue to deteriorate.

Europe’s industrial recession deepens further

Europe remains the weakest link in the global supply chain landscape, with its index falling to -0.72, down from -0.52.

This worsening industrial downturn stems primarily from Germany, where manufacturing demand shows no signs of recovery. Suppliers across the continent reported increased spare capacity as factories reduce input demand.

The UK experienced a slight improvement, with its index rising to -0.12 from -0.40. However, this fails to signal any substantial recovery, as UK manufacturers feel the effects of broader European weakness spilling over into domestic supply chains.

GEP’s data underscores Europe’s contrasting position to Asia and North America, as industrial activity continues to contract amid weaker demand and retrenchment strategies.

The state of supply chains in November

Demand: Demand for raw materials, commodities and components is on the rise following a prolonged period of weakness. While GEP’s tracker is still slightly below its long-term average, it showed improvement in November. This uptick was primarily driven by Asia, where procurement activity surged as companies, particularly in China, ramped up preparations to fulfil new client orders.

Inventory: The stockpiling indicator, reflecting the extent to which companies are building safety buffers in their inventories to guard against risks like shortages or price increases, saw a slight increase in November. Notably, manufacturers in both North America and Asia contributed to this rise in safety stockpiling.

Material shortages: The item shortages indicator continued to reflect strong global supply levels in November, with businesses reporting low instances of poor material availability – a trend that remains historically favourable.

Labour shortages: Reports of backlogs caused by staff shortages remained at historically typical levels in November. Data indicates that labour capacity is not currently a significant constraint for goods producers.

Transportation: The transportation cost indicator stayed steady at its long-term average in November.

How the index works

The GEP Global Supply Chain Volatility Index is a collaborative tool developed by S&P Global and GEP.

It derives its insights from S&P Global’s PMI surveys, which include responses from 27,000 businesses worldwide. The index aggregates six sub-indices, combining PMI data with additional metrics on supply chain capacity, price movements and shortages.

A positive index value signals strained supply chain capacity and rising volatility, whereas a negative value reflects underutilised capacity and lower volatility. November’s reading of -0.20 indicates reduced slack globally, with significant regional variations.

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