Supply chain pressure index falls to lowest level on record, but global business leaders rate risk of supply chain disruption at highest ever in survey

There’s a mismatch in supply chains, as a US Fed measure of supply chain pressure plummets to a new low in October, but business leaders put supply chains as their sixth biggest risk

The New York Fed’s composite measure of supply chain pressure, the Global Supply Chain Pressure Index (GSCPI), dropped to the lowest level in its history October 2023, but there appears to be a mismatch in expectations, as leaders in a major survey ranked the risk of supply chain disruption at the highest level in the survey’s 17-year history.

The latter, in which Aon questioned over 2,800 global business leaders, saw those leaders place supply chain and distribution breakdowns down as their sixth biggest risk, two places higher than the previous survey and the highest ranking yet. Furthermore, they also noted commodity pricing and scarcity of materials as their seventh greatest area of concern.

This perception of risk was even higher for some sectors, with life sciences respondents selecting supply chain as their number one risk in 2023.

Conversely, the GSCPI, which takes in various indices of confidence and supply chain prices, such as the Baltic Dry Index (BDI) and Purchasing Managers’ Indices (PMIs) in major manufacturing economies, is at an all-time low. The measure goes back to 1997, and you would have to go back to the early 2000s or just as the Great Recession was breaking for the last comparable low point (if this trend is sustained). In October, the GSCPI came in at -1.74. noticeably below the -1.58 recorded in November 2008 or the scores around -1.1 to -1.2, which occurred in 2001.

This is a huge turnaround from the pandemic era, where a peak of 4.29 was recorded in December 2021.

This disparity may be based around recent memories of disruption and also a lack of progress in preparing supply chains for future risks.

Aon’s survey analysis noted “survey respondents reported their risk readiness remained unchanged from 2021 (at 63%)”, but when questioned further, “less than 40% of organizations have conducted supplier resiliency assessments and less than 20% have diversified their supplier base to mitigate supply chain or distribution failure risk”.

Meanwhile, 32% reported a loss from a supply chain or distribution failure risk in the last 12 months.

These measures, and their disparity, highlight that excess capacity continues to build up in transportation and manufacturing sectors worldwide as we head towards 2024, but that organisations still need to prioritise supply chain resilience, especially when it comes to key suppliers and contracted logistics companies failing due to bankruptcies.  

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