Tradeshift Index Sees Global Supply Chains in a Dead End

Global supply chain activities have slowed for the second consecutive quarter, dropping by another 6 points contrary to forecasts. This is revealed by the latest Index of Global Trade Health from Tradeshift. Tradeshift is a digitization company with a supply chain commerce platform of the same name that facilitates digital trade transactions between B2B buyers and suppliers worldwide.

(San Francisco) Order volumes in the Tradeshift network fell to a new low in the second quarter, decreasing by another 6 points after already declining by 7 points in the previous quarter. The lack of new orders is beginning to affect suppliers, who had recently been struggling with rising demand. The number of invoices submitted by suppliers dropped by 7 points in the second quarter, the largest decline in a year.

Order conditions may be weakening, but Tradeshift’s analysis shows that costs have risen sharply since the beginning of the year. The average value of an invoice submitted on the Tradeshift platform has increased by 11% since the beginning of 2022, compared to a more modest increase of 3.5% in 2021.

Challenges Affecting the Global Economy

The current wave of inflation has several causes, some of which are related to the pandemic. Throughout the global economy, supply chain disruptions continue to occur. Covid-19 cases in China and the imposition of lockdown measures continue to cause problems. Russia’s invasion of Ukraine further increases pressure, particularly on energy and food prices.

“Many of the current challenges in the supply chain, including inflation, have their roots in the pandemic,” says Christian Lanng, CEO of Tradeshift. “Some of these issues are temporary, but the larger problems, such as labor shortages, geopolitical tensions, and the energy transition, are structural and risk becoming entrenched if companies do not act decisively now.”

Similar Patterns in Regional Supply Chains Worldwide

Overall trade activity in the United Kingdom and the Eurozone fell by 5 points, with order intake and supplier invoices falling below the expected range.

US supply chains performed slightly better than the global average. The transaction volume was 4 points below the expected range in the second quarter, but the volume of new orders remains low.

Chinese trade faced another difficult quarter, as new lockdown measures in key cities contributed to a further decline in transaction volume by 7 points compared to the expected range.

Eurozone: Lower Growth than Expected

In the first quarter of 2022, the outbreak of war in Ukraine triggered the strongest decline in activity measured on the Tradeshift platform since the early days of the pandemic. In the second quarter, the impacts were far less severe. Overall trade activity was only 6 points below the baseline, compared to 14 points in the first quarter.

Invoice volumes lost momentum in the second quarter. This suggests that the order decline from the first quarter is gradually affecting suppliers. Order volume recovered in the second quarter, but growth is lower than expected. It remains below the baseline compared to the previous quarter.

According to a recent report by Accenture, disruptions caused by COVID-19 and the war in Ukraine could lead to a GDP decline in the Eurozone of up to €920 billion (or 7.7%) by 2023. A series of regulations aimed at decarbonizing supply chains is likely to bring further challenges and even higher costs in the short term. However, a focus on sustainable sourcing and green energy could be Europe’s best hope of breaking the current cycle.

Lower T&L Activities Reflect Overall Downturn

Data from Tradeshift indicates that declining demand is also leading to a cooling of activities across the transport and logistics sector. Transaction volumes fell below the expected range for the first time in a year, after activity decreased by 5 percentage points compared to the previous quarter.

Activities in manufacturing and retail also remained below expected values. Spending in the technology sector rebounded significantly in the second quarter. Activity remained within the projected range.

“It would be a perfectly natural reaction for entrepreneurs to pop the champagne and wait for the current storm to pass,” Lanng says. “But many of the issues facing supply chains today will still be present in a year. How long can a company hold its breath before it runs out of air? Most executives I speak with have their eyes on the horizon. They are pushing for the urgently needed investments in technology to become more flexible, resilient, and sustainable.”

The complete Q2 2022 Index of Global Trade Health is available for download in English on the Tradeshift website: https://tradeshift.com/global-trade-report/

Source:

1. https://hub.tradeshift.com/research-and-reports/tradeshifts-index-of-global-trade-health-q2-2022/
2. https://www.accenture.com/us-en/insights/strategy/ukraine-future-supply-chains-europe

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