The Supply Chain Matters blog highlights two February 2023 published indexes of supply chain volatility both reflecting moderation of disruption and higher logistics costs.
This commentary provides a follow on to our published highlights of February’s global wide PMI activity levels.
GSPI Index Returns to Normalcy
The Federal Reserve Bank of New York’s Global Supply Chain Pressures Index (GSPI) compiles 27 different variables to include transportation movement and costs, global PMI sub-indexes reflecting delivery times and order backlog. The index is such that a value of zero indicates pressures of normal value, positive values above zero are an indication of standard deviation above the average.
The February 2023 GSPI dropped to a negative value for the first time since August 2019, in essence signaling a return to normal pressures and now below pre-pandemic levels. Noted in the summary: “The GSPI’s recent movements suggest that global supply chain conditions have returned to normal after experiencing temporary setbacks.”
The report authors further indicated that there were significant downward contributions by a majority of index factors with the largest negative contribution stemming from reductions in European area delivery times.
U.S. Logistics Managers Index
The Logistics Managers Index Report®, compiled by researchers at Arizona State University, Colorado State University, Rochester Institute of Technology, Rutgers University and the University of Nevada Reno, and in conjunction with the Council of Supply Chain Management Professionals (CSCMP), reported a February 2023 value of 54.7, 2.9 percentage points down from the January reading of 57.6.
The authors noted in the February report summary that: “The economic clarity that many have been hoping for did not come in February, as this month we saw a continuation of the mixed signals that have been prevalent for the last several months.”
The reported biggest movers in February were Transportation Costs which declined 5.9 percentage points and now contracting: “at the fastest rate we have measured in the 6.5-year history of this index.” As many of our logistics and transportation readers are aware, February is traditionally a seasonal low point for transportation volumes because of consumer spending declines from consumers and generalized hangovers from the holiday fulfillment period.
A further significant change noted was Warehousing Capacity moving back into expansion levels by 10.2 percentage points in February, a sign of prior capacity constraints. That stated, Warehousing Prices and Inventory Costs remain expanding at accelerated rates and the authors caution: “..it will take a significant and prolonged expansion of Warehousing Capacity to push the market back toward normal cost levels.”
The Transportation Prices index reported a value of 36.1 for February, a noted significant decline from the 42.0 value reported for January. Noted was that this significant drop established a brand new all-time low for this index.
Added Thoughts
As Supply Chain Matters observed in highlights of February’s PMI data, the key interpretation right now is stabilization, in other words, the bleeding has possibly coagulated. The February GSPI would indicated the return to normal levels of volatility while the February LMI indicates significant cost drivers for inventory holding and warehousing costs remain at high levels and may continue so for several added months. The chairperson of the U.S. Federal Reserve indicated today a more accelerated increase in interest rates is in-store during the next several months in order to tamp down on high employment and inflation levels.
The indicators for longer-term sustained momentum remain subdued and despite some reports in business, industry or supply chain focused media that the worst is over, readers should be very watchful of the trending that continues over the next several months.
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