VP Bank : Supply Chain Index - How things stand in terms of global trade

The VP Bank Supply Chain Index

So, in a nutshell: the signals are contradictory. Look in one place and improvements can be seen. Look elsewhere and the situation remains tense. When assessing the economic trend, it is important to keep an eye on the status of supply chain disruptions. Today, scarce goods are driving up intermediate and end prices, with the result being that central banks now have little other choice than to change course by raising their benchmark rates, this in effort to counteract at least the second-round effects. But once the materials shortages become less severe, the overall situation will ease and producer prices could even start to retreat.

In order to systematically map the developments in global trade, we have developed the VP Bank Supply Chain Index. The eleven parameters used in its calculation include the indicators previously discussed and are in particular:

• Freightos Baltic Index
• Goods blocked (IfW Kiel)
• Eurozone inventory status based on the EU Commission's monthly survey (six different product categories)
• ISM Manufacturing Index (sub-aggregates: 1. difference between order backlogs and inventories; 2. Delivery times)

These time series are then condensed by means of a statistical method known as principal component analysis to generate a single indicator. The resulting values are plotted on a scale from 0 to 100, with 100 corresponding to the smoothest material flow to date within the given timeline. Values of zero, or close to zero, indicate a tense supply chain situation. In other words, a high reading means smooth sailing; a low reading, rough seas.

VP Bank Supply Chain Index