Global supply chains continued to display signs of slack in May 2025, as trade friction and tariffs reshaped procurement strategies across key regions. According to the GEP Global Supply Chain Volatility Index, spare capacity persisted, highlighting ongoing adjustments in global logistics networks.
The headline index dipped further into negative territory, falling from -0.39 in April to -0.46 in May. This decline indicates increased slack in procurement demand, transport costs, shortages, and backlogs. The index, developed by GEP in collaboration with S&P Global and based on survey data from 27,000 companies worldwide, serves as an early indicator of supply chain trends. A negative reading reflects underutilized capacity, while a positive value signals growing strain.
Asia’s Decline Weighs on Global Activity
The downward trend in May was driven primarily by Asia, where supply chains exhibited the most spare capacity since December 2023. For the second consecutive month, factories across the region slowed their purchasing of components and raw materials, reflecting caution amidst an uncertain economic environment.
China experienced the sharpest contraction, pulling the broader regional index down to -0.40 from -0.32 in April. This represents the most significant retrenchment since late 2023, as falling demand and tariff pressures weighed heavily on manufacturers. Across Asia, procurement activity has slowed, suggesting businesses are not anticipating a rebound in the near term. Idle materials and partially filled supply pipelines further underscore the region’s cautious approach.
Contrasting Trends in North America and Europe
In North America, the supply chain index improved slightly, rising from -0.34 in April to -0.24 in May. While still in negative territory, this modest increase reflects a preemptive stockpiling of raw materials and commodities by US manufacturers, aimed at mitigating potential price hikes or future disruptions.
However, this trend is not uniform across the region. Mexico and Canada continued to exhibit weak demand and underutilized capacity, pulling the regional index downward. Despite proactive inventory-building in the US, factories have yet to operate at full capacity.
In Europe, conditions remained relatively stable. The region’s index edged down marginally, from -0.29 in April to -0.30 in May, maintaining a level above its two-year average. Fiscal support measures, particularly in Germany, have helped prevent further declines in manufacturing activity.
The UK, however, remains a point of weakness. While its index improved slightly from -1.12 to -0.97, it continues to signal significant underutilization. British manufacturers have maintained a cautious stance, limiting both production and procurement.
Expert Insights on Trade and Procurement
John Piatek, Vice President at GEP, emphasized the broader implications of current trade dynamics:
“US-China trade talks are occurring at a pivotal moment. Chinese factory demand has dropped sharply, while US manufacturing is grappling with excess capacity.”
He added, “Tariffs are not just background noise. They are actively reshaping procurement strategies, with companies diversifying suppliers, front-loading inventories, and preparing for prolonged economic decoupling.”
Key Indicators: Demand, Inventory, and Costs
Demand: Global demand for materials and components remained subdued in May, unchanged from April. In Asia, the drop in demand marked the steepest decline in 18 months, highlighting persistent caution in procurement decisions.
Inventory: Regional contrasts persisted. European manufacturers favored lean inventory strategies, maintaining historically low safety stock levels. Conversely, US buyers increased reserves for a second consecutive month, pushing stockpiles above their long-term average.
Material Shortages: Shortages were not a significant concern. The global shortage index remained below its historical norm, suggesting adequate supply availability to meet current demand.
Labour: Labour-related backlogs rose slightly in May but stayed within typical ranges, indicating sufficient workforce capacity to handle reduced order volumes.
Transport Costs: Freight rates remained stable, aligning with historical averages and neither adding to nor alleviating supply chain pressures.
Conclusion: A Stalled Supply Chain Landscape
The GEP Global Supply Chain Volatility Index aggregates six key indicators derived from global PMI surveys, offering a forward-looking view of supply chain stress points. In May, the index painted a clear picture: global supply chains are not under strain—they are stalling.
As businesses navigate prolonged trade tensions, the coming months will test their resilience and adaptability in an increasingly fragmented global market.
Source: https://supplychaindigital.com/supply-chain-risk-management/key-insights-gep-global-volatility-index-may-2025
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