Source: Federal Reserve Bank of New York, Global Supply Chain Pressure Index (GSCPI).
Assessing the severity of a supply chain disruption is challenging. It can involve a wide range of events such as raw materials price changes due to shortages, a disturbance in port operations due to a strike, or a natural disaster disrupting a manufacturing cluster. Most disruptions have a local effect and are barely noticed elsewhere, while other events can have global ramifications.
The Global Supply Chain Pressure Index (GSCPI) was developed by the Federal Reserve Bank of New York and includes 27 monthly variables reflecting events within supply chains and transportation costs in the maritime and air cargo sectors. The index is normalized so that zero indicates an average value. Any deviation is related to a stress level, with the extent of the deviation indicative of the severity. Positive values represent how many standard deviations the index is above the average, implying that supply chains are under pressure. Negative values are shown when supply chains are functioning well and experiencing limited disruptions or pressure. In its normal state, the GSCPI is expected to be below zero. Some events, particularly the onset of a recession, such as the financial crisis of 2008-2009, can remove substantial pressure on supply chains as demand declines. Therefore, low values are not necessarily reflective of good economic prospects.
The variability of the GSCPI can be associated with specific events. For instance, the index surged in 2011 following the Sendai earthquake and resulting tsunami, and Japanese car manufacturing and its exports to foreign markets were severely impacted. The same year, flooding around Bangkok, Thailand, disrupted global supply chains in the automotive and electronics sectors, particularly hard drives, leading to shortages among global computer manufacturers. The index rose again in 2018 and 2019 following United States-China trade disputes, inciting several large manufacturers and retailers to revise their manufacturing and procurement strategies.
The onset of the Covid-19 pandemic resulted in record-level disruptions as the event affected entire global supply chains. The GSCPI surged in early 2020 and fell back in the Autumn of the same year as China resumed its manufacturing in the second semester of 2020. A divergence emerged as the shipping and port industry could not cope with the surge across several trade lanes. An important driver was a shift in consumption patterns in key import markets, particularly in the United States and Europe. While consumers usually spend about 69% of their personal consumption expenditures on services, the pandemic resulted in a drop to around 65% by the second half of 2020, the extra spending going on goods consumption, notably durable goods. This shift was substantial enough to put significant pressure on supply chains. By late 2020, increasing port congestion resulted in the GSCPI surging again, particularly for Los Angeles/Long Beach. This was aggravated by the blockage of the Suez Canal in March 2021. By late 2021 and early 2022, the index was on the decline, but the War in Ukraine created additional disruptions, particularly in the energy and agricultural sectors.