Tradeshift Index of Global Trade Health

Q4 2020

“
As buyers focus on building resilience to future shocks, we need to consider how best to equip suppliers to come with them on that journey.
Technology can help to address this challenge, unlocking faster, more predictable cash flow, better access for diverse suppliers and increased optionality in the event of disruption. What’s good for suppliers, will be good for buyers.
Christian Lanng
CEO and co-founder, Tradeshift

Key findings at a glance

Global business to business transactions grew 14.8% in Q4,
exceeding pre-pandemic levels for the first time since March.
The US was the standout performer in Q4. Transaction volumes
were up 28.8%, almost double the growth rate globally.
Transaction volume growth in the Eurozone was also well above
the global average at 22.1%.
The UK is still struggling to pick up momentum. Transaction volumes
rose 7.3% in Q4, and overall activity remains some way below
the pre-pandemic level.
In China, our data suggests trade activity is preparing to move up a gear.
Total transactions in December were up 32% against pre-lockdown
levels in January.
Retail (CPG) had the strongest quarter. Transaction volumes rose 34%,
but the overall picture remains volatile across the sector.
T&L transaction volumes rose by a more modest
9.7%, manufacturing was up 16.3%,
while transactions in the technology sector rose 16.9%.
Order volumes continued to show strong momentum in Q4, rising 22%
across the Tradeshift network, suggesting a positive start
to 2021 for supply chains.
Invoice volumes also grew at the fastest rate we’ve seen all year in Q4.
But liquidity remains an issue for suppliers as order
growth continues to outpace the rate of invoice settlement.

US soars while UK stutters

Transaction volume — quarter on quarter growth

The US was the standout performer in Q4. Transaction volumes grew 28.8%, almost double the rate we saw globally.

Learn more

The data echos a survey conducted by lobbying group Business Roundtable, which found confidence among US CEOs rebounded to pre-pandemic levels in Q4.

Trade activity in the Eurozone also grew at a faster rate than the global average. China trade activity dipped in October during the Golden Week national holiday, but finished strongly to remain in growth territory.

UK transaction growth held its momentum but its slow progress and overall activity remains some way below the pre-pandemic level.

A survey of leading economists conducted by the Financial Times concluded that the UK would be the last leading economy to recover from the pandemic.

News of a Brexit deal gave businesses in the region some much needed clarity at the very end of the quarter, but a truer test will come in 2021 as the country settles into a new relationship with its key trading partner.

China’s almighty comeback leaves the west trailing

Transaction volume - Monthly comparison indexed against January transaction data

China took drastic action to curtail the spread of COVID, with factories closed and millions told to stay indoors, business trade activity dropped by nearly half in February.

China’s story is in stark contrast to the West, where shifting policies continue to create rocky terrain for supply chains to navigate. This lack of predictability meant it wasn’t until September that supply chains found a footing and began inching back into growth territory.

China has stolen a march on the West by bouncing back quickly, and the consistency we’re seeing in transaction data offers a level of predictability that has yet to return fully in the West. An uptick in transactions at the end of the year suggests China may now use this solid foundation to kick up a gear. Will it maintain this trajectory in in 2021, or as some commentators are saying, is the recovery reaching its peak?

Transaction volume - Quarterly growth shown cumulatively against Q1 2020

Suppliers left waiting for a return to predictable cash flow

Invoices and orders, global — month on month growth comparison

Invoice volumes grew at the fastest rate we’ve seen all year in Q4. That’s good news for suppliers who have faced acute liquidity challenges over the past six months.

Learn more

We’re not quite out of the woods yet however. Order volume growth continues to outpace invoice settlements and managing/forecasting cash flow in these conditions presents a number of challenges. Suppliers face a triple-whammy of high demand, depleted working capital and in many cases, unpredictable payment cycles.

According to one recent report, large organizations are delaying payments by an average of 15.6 days beyond agreed terms.

Surging order volumes bring the potential for a brighter year ahead, but the early promise we’re seeing in our data could hit trouble if we fail to bring supplier payment cycles into line with order growth velocity.

Digitized financing options, which offer payment on invoices in as little as two days, offer a potential solution by unlocking fast and predictable payments to suppliers.

Climate crisis

“
To understand the kind of damage that climate change will inflict, look at COVID-19 and spread the pain out over a much longer period.
Bill Gates, August 04, 2020

Measuring ESG performance requires better data across the value chain

Q&A with Saverio Lapini, Marketing Director, Normative.io

We’ve been talking about ESG reporting for years. What evidence are you seeing that sustainability is becoming a more strategic priority for businesses?

You can see that ESG is rising from at least two different viewpoints. If you look at asset owners, like pension funds and sovereign funds, over 70% of them now have ESG policies in place. This was just not the case five years ago. Since asset owners and investment managers have ESG policies in place, also the companies they invest in will have to respect their ESG criteria and report on their ESG performance. This factor alone is scaling ESG reporting faster than ever. But companies are doing a lot even without the pressure of their investors. We see a new stream of sustainable finance that is attracting a lot of capital to finance sustainable companies. Five years ago, green bonds looked like futuristic inventions. Now they are a must-have in the financial toolbox, and more innovative forms of sustainable finance hold a great potential too, like sustainable bonds and sustainability-linked loans.

There’s still a lot of debate over standards relating to how businesses report ESG. How much of an issue is that, and how close are we to agreeing on a common set of standards?

The lack of a common standard is one of the major issues in ESG. In the EU, many problems will be solved by the EU taxonomy which will enter into force at the end of 2021, uniforming the reporting requirements across the Union. In the international landscape, two of the major reporting frameworks, SASB and IIRC, recently joined forces to create a common reporting framework, and we think that many other frameworks will follow suit. It feels like we are getting close to the inflection point, where a handful of events could accelerate the development of the whole sector exponentially.

How do companies typically measuring ESG performance today? How effective is that in providing an accurate picture of performance?

Measuring your ESG performance in-house is very hard, only a handful of companies have the capacity to do so. And even those who do, only account for the emissions generated by their own operations, which are about 10% of their total footprint. Over 90% of companies’ environmental impact is generated in the value chain, and it’s really hard to get a hold of those emissions. Most companies use external expertise for their assessments, but because of the cost barrier, they still perform only the few calculations required to publish a decent sustainability report. They then take some easy actions to reduce emissions, like switching electricity providers or reducing business travel, but there’s so much more they could do.

Can you tell me a little bit about the work Normative is doing to help companies improve the way they measure sustainability?

Today, many companies spend 80% of their time (or budget) calculating their impact, and 20% making efforts to become more sustainable. Normative flips that equation. Our software calculates companies’ emissions automatically in a tenth of the time, freeing up energies to focus on what matters: improving the environmental impact. We deliver insights on the main sources of companies’ emissions so they can focus on the highest-impact actions, because reducing business travel or switching electricity providers aren’t the only things you can do. Our calculations are based on science and companies can use them to reduce their impact and comply with any law or reporting framework in the world. It is interesting to see that our clients usually reach out to us because they want to publish a sustainability report, and they need good data for it to be credible. But after they realize that the bulk of their emissions come from a handful of activities, they can’t help but do something about it. That’s where we feel we are really making a difference.

According to the Sustainability Consortium, just 25% of large organizations have visibility of their supply chain beyond tier one. Why do so many organizations find it so hard to gain a deeper level of visibility into their supply chains?

The main issue is probably collaboration, because gaining visibility in the supply chain is not something you can do on your own. To get good data on your supply chain, your suppliers must evaluate their environmental impact and share their data with you, which is by no means a simple task. With globalization, every company has suppliers that come from the other side of the world, speak a different language and are bred in a completely different culture. Even the basic communication tasks can sometimes be an issue. In addition to that, every supplier also has suppliers of its own, making the issue exponentially more complicated. Normative simplifies this whole process. We don’t ask companies to collect tons of data from their suppliers, because we know how hard it is. Our clients only provide us with their accounting data, e.g. the invoices of what they bought, and we automatically calculate the emissions connected to their purchase. This way they not only save time, but they also get the most comprehensive calculations they could possibly get, because everything they buy is recorded in the accounting system. Normative transforms simple accounting data into fully transparent environmental impact assessments of your entire supply chain. We put companies in control of their emissions and empower them to take climate action.

Final thoughts — COVID is a test run for addressing the climate crisis

Perspective by Mikkel Hippe Brun, Co-founder, Tradeshift

Rising order volumes and the promise of a vaccine suggest a brighter 2021. It is clear however that the pandemic, far from being an outlier, is rather a harbinger of the sort of shocks we can expect in the years to come, as climate change and other disruptions take hold.

“Climate change has become a defining factor in companies’ long-term prospects,” wrote Larry Fink, CEO of Blackrock at the beginning of 2020. Fink could not have foreseen what was to unfold in the coming months, but COVID quickly became a test-bed for pressures large organizations and their supply chains will face as environmental conditions continue to deteriorate.

A growing body of evidence is already emerging suggesting firms with higher ESG performance were better equipped to handle disruption from the pandemic. These organizations share a number of key characteristics. Crucially they also have deep-tier visibility across the supply chain ecosystem.

Over the next 18 months, businesses of all sizes will face mounting pressure to commit to greater transparency across value chains by publicly disclosing sustainability data. Germany has already announced plans for a new Supply Chain Act which will place mandatory legal obligations on companies based in Germany with more than 500 employees to ensure that social and ecological standards are observed through all tiers of the value chain.

A reliance on paper-based processes in supply chains means that many organizations are ill-equipped to meet these reporting obligations. As of 2020, just 17% of German companies were able to provide the required information to comply with the proposed Supply Chain Law. The only way to overcome this is through digitization.

IDC estimates that by 2025 half of all manufacturers will have extended visibility to tier 3, enabling more agile supply chains and a 50% reduction in the impact of supply-side disruptions. Greater transparency will also mean procurement practices that focus purely on extracting maximum value at minimum cost will come under the spotlight. We expect the move to shorter supply chains and greater supplier diversification will gather momentum as resilience planning merges with long-term sustainability goals.

Such reconfiguration will come at a cost. Organizations will need to consider whether they absorb the cost of resilience, pass it on to the customer, or look for other ways to increase efficiency, such as through the use of automation. Some businesses may baulk at the prospect of such upheaval, others will see this as an investment in the future. Judging by what Larry Fink and others are saying I know which side of the fence I sit on.

Tradeshift Index of Global Trade Health

Q4 2020

As buyers focus on building resilience to future shocks, we need to consider how best to equip suppliers to come with them on that journey.

Technology can help to address this challenge, unlocking faster, more predictable cash flow, better access for diverse suppliers and increased optionality in the event of disruption. What’s good for suppliers, will be good for buyers.

Key findings at a glance

US soars while UK stutters

Transaction volume — quarter on quarter growth

The US was the standout performer in Q4. Transaction volumes grew 28.8%, almost double the rate we saw globally.

China’s almighty comeback leaves the west trailing

Transaction volume - Monthly comparison indexed against January transaction data

China took drastic action to curtail the spread of COVID, with factories closed and millions told to stay indoors, business trade activity dropped by nearly half in February.

Transaction volume - Quarterly growth shown cumulatively against Q1 2020

Suppliers left waiting for a return to predictable cash flow

Invoices and orders, global — month on month growth comparison

Invoice volumes grew at the fastest rate we’ve seen all year in Q4. That’s good news for suppliers who have faced acute liquidity challenges over the past six months.

Climate crisis

To understand the kind of damage that climate change will inflict, look at COVID-19 and spread the pain out over a much longer period.

Measuring ESG performance requires better data across the value chain

Q&A with Saverio Lapini, Marketing Director, Normative.io

Final thoughts — COVID is a test run for addressing the climate crisis

Perspective by Mikkel Hippe Brun, Co-founder, Tradeshift

Rising order volumes and the promise of a vaccine suggest a brighter 2021. It is clear however that the pandemic, far from being an outlier, is rather a harbinger of the sort of shocks we can expect in the years to come, as climate change and other disruptions take hold.

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