Rising costs and a slowdown in demand kicks off a new game and new rules for global trade
Global supply chain activity continued to fall against expectations in Q4, ending the year 3 points below the baseline.
Heading into 2023, we see the beginnings of a new cycle for global trade.
Whisper it, but the overall picture is looking a little less catastrophic than it did just a few months ago.
Tradeshift’s Index of Global Trade Health shows the total volume of trade transactions across global supply chains at 3 points below the baseline in Q4, a modest improvement on the 5-point deficit recorded in Q3 of 2022.
“For more reasons than one, this quarter’s Index feels like the economic equivalent of ‘long Covid,’” said Tradeshift’s CEO, Christian Lanng. Lanng continues, “The initial sickness seems to have passed, but the lingering after-effects can often be just as painful as the acute phase. All the indications are that 2023 provides a strong possibility of relapse.”
Global trade activity ended the year 3 points below the expected range, the best figures we have seen all year, suggesting modestly improving trading conditions overall.
Buying activity tracked 4 points below the baseline in Q4, compared to the 7-point fall we observed in Q3.
US trade activity tipped into the red zone for the first time in over a year as order volumes sank to 9 points below the expected range in Q4.
Economic uncertainty may have hammered tech stocks on the public markets, but businesses are still plowing investment into much-needed digital transformation projects.
Lessons from the pandemic can help supply chains build resilience.
Are companies likely to start paying vendors more slowly by extending payment terms?
Adding to the pressure on suppliers, large organizations carrying high volumes of excess inventory may start to cancel or pause existing orders to rebalance their own cash flow.
About the Tradeshift Index of Global Trade Health
Many of the world’s largest buyers and their suppliers use Tradeshift’s trade technology network to exchange digitized purchasing and invoicing information. The data these transactions yield provides us with a unique awareness of trading activity between businesses.
Tradeshift’s Index of Global Trade Health analyzes anonymized world trade data flowing across our platform to reveal a timely perspective of how external events are impacting business-to-business commerce around the world.
We acknowledge that there are limits to how accurately our view of what is happening on our network can reflect how complex global supply chains are reacting to a variety of external factors.
What our world trade data does provide is a useful snapshot that provides clues as to what might be happening to the global economy. The patterns we see in our data become more valuable as we combine them with other third-party data and expert insight, something which you will see us draw on throughout this report.
The Index of Global Trade Health compares business-to-business transaction volumes (orders processed from buyers and invoices processed from suppliers) submitted via the Tradeshift platform against a ‘baseline’ we have created by analyzing medium-term seasonal trends in the transaction data that flows across our platform.
A reading that meets the baseline indicates growth in line with expectations against historical trends. Readings greater than and below the baseline indicate above-trend and below-trend growth.
Looking at the data in this way helps give a sense of how volatile activity is across different sectors and geographies. For example, a sudden rise in orders might trigger orders to jump at a rate that exceeds what we would consider normal. By contrast, waning demand might trigger volatility in the opposite direction.
We consistently strive to improve and evolve the accuracy of our analysis. As a result, it is possible that from time to time, you may see small revisions to historical numbers reported in previous versions of the Index.
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Global trade trend activity rises sharply as recovery builds momentum.
After seeing trade activity slump to record lows as a result of the lockdown in early second quarter, signs of a recovery began to emerge in May and June as economies in the West began to reopen.
Ever since reports of the virus first emerged in January, we’ve followed the impact of the pandemic on business-to-business trade and the health of global supply chains. It’s been an extraordinary few months.