GEP Global Volatility Index: May Insights in Trade Conflict

Global supply chains saw more slack in May 2025, with the GEP Index showing spare capacity rising as trade friction and tariffs reshape procurement

Global supply chains are feeling the weight of prolonged trade conflict.

The May 2025 edition of the GEP Global Supply Chain Volatility Index shows capacity continuing to go unused across major regions.

The headline figure dips further into negative territory, down to -0.46 in May from -0.39 in April, signalling that procurement demand, transport costs, shortages and backlogs all point to increasing slack.

This index, built on survey data from 27,000 companies worldwide and developed by consulting firm GEP in partnership with S&P Global, serves as an early signal of supply chain trends. A negative value means supply chain capacity is underused, while a positive reading would indicate growing strain.

Asia's retrenchment pulls global activity down

The decline in May is largely driven by developments in Asia, where supply chains show the most spare capacity since December 2023. Purchasing of components and raw materials by factories across the region has slowed for a second month.

China, in particular, saw the sharpest pullback. The broader region reflects this weakening trend, with the index falling to -0.40 from -0.32. That drop highlights the strongest retrenchment seen since late 2023 - and how falling demand and tariffs are weighing on manufacturers’ decisions.

In Asia, the slump in procurement activity suggests businesses are not preparing for a rebound. Orders are cautious, materials are sitting idle and supply pipelines are left partially empty.

North America stockpiles while Europe stabilises

Across North America, the supply chain index actually rises, from -0.34 in April to -0.24 in May, but remains in negative territory, indicating continued underutilisation.

The US sees a modest increase in purchasing, with manufacturers stocking up on raw materials and commodities. This is a pre-emptive response to fears of future price hikes or possible disruptions.

Mexico and Canada offer less optimism. Both continue to drag the regional index down, showing weak demand and idle capacity. Although North American buyers are preparing for future risks, factories are not yet operating at full tilt.

In Europe, conditions appear more stable. The region's index barely moves, dropping slightly from -0.29 to -0.30, but still sitting well above the two-year average. Recent fiscal support measures, particularly from Germany, help keep European manufacturing activity from declining further.

Yet the UK remains a weak spot. The British index lifts from -1.12 to -0.97 — still a level that signals deep underuse. Manufacturing firms there continue to pull back production and limit procurement.

GEP Vice President John Piatek explains the broader shift: "US-China trade talks come at a critical moment — Chinese factory demand has dropped sharply, and US manufacturing is weighed down by excess capacity."

He adds: "This isn't just macro noise. Tariffs are already reshaping procurement strategies as companies front-load inventories, diversify suppliers and brace for a longer game of economic decoupling."

Supply chain signals: Demand, inventory and labour

Looking at key indicators, global demand for materials and parts remains weak, unchanged from April. In Asia, the fall in demand is the steepest in nearly 18 months, pointing to persistent caution in procurement.

Inventory levels also show regional contrasts. In Europe, manufacturers continue to favour lean storage. Safety stockpiling stays historically low. By contrast, US buyers are building up reserves for a second straight month, keeping stockpiles above their long-term average.

Material shortages are not a concern. The global shortage index remains below its long-term norm, suggesting vendors have enough supply to meet demand.

Labour-related backlogs edge up slightly in May but still sit within typical ranges. Workforce capacity appears sufficient to meet the reduced order flow.

Transport costs offer no fresh pressure. Prices for moving goods remain broadly in line with historical averages, neither adding nor easing constraints.

The GEP Global Supply Chain Volatility Index provides an aggregated view of six indicators derived from global PMI surveys, including commentary and pricing trends. It offers a forward-looking view of supply chain pressure points and has become a tool for gauging real-time business sentiment.

For May, the message is clear: global supply chains are not straining — they are stalling.

Source: Supply Chain Digital / GEP