Global supply chain pressure index at an all-time high
An index of global supply chain pressure published by the Federal Reserve Bank of New York clearly shows that the Russian invasion of Ukraine is adding a fair amount of ‘extra pressure’ to an already strained situation. According to this index, which dates back to 1997 and covers all global industries, the pressure is now at an all-time high.
In early 2022, there finally seemed to be light at the end of the tunnel again for the global supply chain. Insiders were already forecasting a considerable pressure equalization – that is, if the war against Ukraine had not broken out on 24 February. In the end, this also caused the current peak of the pressure reported by the Global Supply Chain Pressure Index (GSCPI) to a value of over 4 points.
Manufacturing crippled by a single part
What applies to the bicycle sector naturally also applies to all other industries: it is not always a product as a whole that is affected by the current delivery chain problem, but often only a single part of the value chain. This alone can cause the whole house of cards to collapse. In other words, if this one part cannot be delivered, the entire manufacturing process comes to a standstill. This also means that the manufacturer can no longer deliver either.
Previous GSCPI spikes, however, are nothing compared to the third that began at the start of the Corona pandemic. Initially, it was China’s rigorous lockdown measures that caused the index to spike. When world production got going again in the summer of 2020, it immediately took the pressure off again – before it then rose sharply again in fall/winter of 2020 due to rising Covid-19 numbers and renewed lockdown phases.
Global Supply Chain Pressure Index explained
The Global Supply Chain Pressure Index (GSCPI) summarises 27 variables that capture everything from cross-border transportation costs to country-specific manufacturing data in China, the Eurozone, the United Kingdom, Japan, South Korea, Taiwan and the United States. In addition, national purchasing manager indices and global freight rates (including container index) and various air freight price indices were added.
GSCPI is normalised as follows: zero indicates that it is at its average value. Positive values indicate how many standard deviations the index is above average value. In other words, the higher this value, the more supply chain disruptions there are. Negative values, meanwhile, indicate how many standard deviations the index is below the average value.
Index development 1997–2020’
Looking at the value shown just below zero in 1997, we see the first major deflection in 2011. This is based on two natural disasters: first, there was the Tōhoku earthquake and the resulting tsunami in Japan. That brought a global center of automotive manufacturing to a standstill.
Second, there were the floods in Thailand. They flooded seven of the country’s largest industrial areas. This slowed down the global production chains of the automotive and electronics industries. A second noticeable index increase in 2017/18 is routed in the trade disputes between China and the US.
Source: Federal Reserve Bank of New York
* New York Fed’s GSCPI is based on data from Bureau of Labor Statistics; Harper Petersen; Baltic Exchange; IHS Markit; Institute for Supply Management; Haver Analytics; Bloomberg and NY Fed calculations.
When this value will drop again depends on the further development of both the corona pandemic and the war. However, what can be assumed for now, and presuming that there are no further global ricochets, even if the two problem areas mentioned above can be solved, the index is far from being back to zero immediately. Whatever happens – it will take months, if not years, until the global supply chain and situation is completely back on track.