Tradeshift CEO Talks Supply Chain Challenges in 2023 on CNBC
Watch Tradeshift CEO Christian Lanng discussing the key challenges for supply chains in 2023 on CNBC
Christian Lanng, Co-founder and CEO at Tradeshift, discussed the outlook for global supply chains live on CNBC’s flagship Squawk Box program following the release of our Q1 Index of Global Trade Health.
Christian explained why global supply chains entered 2023 struggling to rebalance inventory volumes and the likely impact this will have on supplier cash flows in the coming six months.
“Buyers have been asking suppliers to double their inventories,” said Lanng.” They’re now holding back on placing orders for that inventory, and they’re paying later on existing invoices. On top of that, as a supplier, you’re paying much more for financing your inventory.”
Christian highlighted that businesses are increasingly looking to diversify their supplier base by moving production facilities to emerging economies, including Vietnam and Mexico. He stressed that this reconfiguration cannot be done at scale without digitalization.
“Companies we had talked to that told us they were happy with their supply chain are coming back to us and asking for help digitizing their operations in ways they hadn’t previously considered to be a priority before.”
Get more insights on what’s happening to supply chains in your region or sector in our Index of Global Trade Health.
Full Interview Transcript
Karen Tso 0:06
High inventory levels and signs of a border economic slowdown have hit retail sector trade volumes this year, driving a fifth straight quarter of slowing global trade activity. That’s according to Tradehift’s latest Index of Global Trade Health. Christian Lanng is the CEO of Tradeshift and joins us now. Christian, thanks for joining us in the studio. A fascinating report here. We’re talking about what could be a looming recession stateside. Already we’re seeing some softness in various channels but it feels as though there is now still a glut of inventory and the washup of some of these Covid trends. Just walk us through what your index is telling us.
Christian Lanng 0:40
Yeah, I think it’s neither here nor there in the sense that a lot of suppliers and a lot of buyers are right now trying to figure out I mean, are we moving out of a recession are we going into a recession? I think it was looking at the interest hike in the US that’s probably getting one more. At the same time, everybody’s thinking was Silicon Valley Bank the sign that it’s over. So it’s extremely hard to predict, and if your purchaser it’s extremely hard to predict. You’re not going to over-commit, and you’re also not gonna go to, you know, cut too low, and we’re seeing that in global supply chains everywhere. We are seven points down, probably the lowest point in two years post-lockdown, Eurozone even harder, and the UK even further down. So extremely hard to predict the current environment. We’re not out of the woods, and on the other hand, it’s not clear cut that we are seeing a recession we’re seeing a little bit of uptick in the US but not a lot. And that’s on the order side.
Karen Tso 1:33
Just for the retailers. It feels as though they’ve been scarred on both sides had too much inventory at one point, so they couldn’t ship the inventory on the other side didn’t have enough inventory and therefore missed out on some potential sales. Does that mean that they’re sort of jumping shadows on both sides?
Christian Lanng 1:46
Yeah, we’ve had this nasty bullwhip right where, you know, during COVID, we saw consumers ordering massive amounts, just as a lot of manufacturers were amping down manufacturing levels and sending people home. That spiked prices and then had an inventory, you know, big inventory shortage. Then as manufacturers amped up their inventory we saw consumers going the other way, and I think a lot of what we call inflation today is supply-side-driven inflation. I think we haven’t ever really had to deal with that. Most cases of global inflation have always been the demand side and I think some of the tools that you’re seeing such as interest rate hikes, actually worsen in some parts of the supply chain. So that’s one of the big challenges. We don’t really know how to deal with this issue.
Geoff Cutmore 2:30
Are Chinese factories actually up and running at this point? Because the data we’ve had so far would suggest actually they’ve suffered from a lack of orders over recent quarters.
Christian Lanng 2:45
China is open again, and Xi has been very clear, right, it’s back to business in China. I think the problem China has is actually not just about China being open again. At the time when China has opened, the world has done two things right. You know, there’s global inflation and pushing on supply that put consumer demand on one dimension, and then the second thing is, I think after Ukraine, after Russia, there is a nervousness, and there’s a nervousness around China, and that also means we’ve seen diversification continuously the last four or five quarters. Vietnam five times normal activity Mexico six times normal activity. So large global supply chains keep investing in alternatives to China. And then you also have that consumer demand issue that China really is dependent on for the high-margin stuff that they do.
Geoff Cutmore 3:35
What’s happening with your business? I mean, are you seeing any premium for some of the reconnecting of the supply chains? Are you still raising money? Tell us a bit more about how it’s affecting you.
Christian Lanng 3:49
Yeah, I mean, it’s funny to see, right? A lot of the companies we talked with over the last six or seven years had said, ‘Look, we don’t need to do any changes to our supply chain, everything is working fine.’ They’ve been coming back over the last two years and say ‘Actually, we might want to be looking at digitizing our supply chains in weird ways that we weren’t before.’ And it’s all about today being agile, having resilient supply chains, and that’s something we’ve been selling for the last 10 years. I think if you look at our business, you know we are well on the way to being profitable and have been on that journey for the last three years. So we did not get caught out in, I would say, the tech market last year, luckily, and you know, we just want to continue working on that.
Steve Sedgewick 4:27
The aim of the central banks appears to be to let the market do part of their job for them in reducing liquidity from the economy and as such not inducing a recession but a slowdown. That’s their stated aim now and then the hope as well. You are talking about this in real terms. So in the short term, you do see a liquidity gap opening up that will hit supplier cash reserves as well. Now, whilst I’ll take on board what you’re saying in the short term, you think the longer term this might just pass through, but why won’t it stay as tight for the longer term given the fact that rates aren’t pivoting anytime soon?
Christian Lanng 4:59
Yeah, I mean, I think first off, orders are the indicator of what will happen in six to nine months from now right? Purchase orders coming in today will turn into invoices and then real money in the economy in six to nine months from now, and they’re starting to tick up a little bit in the USA. Elsewhere they’re not. So I think that’s probably my view in the US is we’re gonna get through it.
Steve Sedgewick 5:16
Just on that; why would they be ticking up in the US when they actually, probably what the Fed is trying to do is to get it to tick down?
Christian Lanng 5:23
That’s interesting. I think the way you’ve got to think is that they’re essentially ordering to post the inflation and flattening of the interest. So so that’s a little bit counterintuitive, but the bigger problem you have is we’ve been implementing these resilient supply chains. Let’s just be clear about what that means. That means we ask the suppliers to double inventory, we’re not going to pay for it, and by the way, we’re going to pay you later. And then, on top of that, as a supplier, you’re now paying much more for financing your inventory and financing.
Steve Sedgewick 5:50
Yeah, we’re not gonna give them the orders we’re gonna make them have a higher inventory, and they’re gonna pay more for it. That doesn’t sound very fair.
Christian Lanng 5:57
And I think then if you start thinking about a lot of the inflation problems we have being supply-side driven. Putting a lot of suppliers at risk at higher financing is probably not the right medicine to get rid of supply-side inflation.
Karen Tso 6:10
Taking us back to a conversation that we’ve been having in recent days around what the ECB Christine Lagarde was saying that effectively you need to be working hand in glove with fiscal policy and monetary policy; that you need to be building up resilient supply chains. Does that mean we’re entering an environment of just a subsidy regime to build up more resilience? Here in Europe, government handouts are really the only answer.
Christian Lanng 6:33
I mean, I think to be clear right now the people who are subsidizing resilient supply chains are the middle and small suppliers because they’re taking the hit on their balance sheet right now. They’re not seeing I would say any subsidization from the ECB or elsewhere. The bigger guys might be a warning for that. I think to get through this, we truly need to talk about what is a good way of building resilient supply chains and not just hit the suppliers because that’s going to impact demand it’s going to create, I think bankruptcies later this year for a lot of suppliers and that you will have even less inventory.
Steve Sedgewick 7:10
Super Christian. We’re gonna leave it there. Nice to see you. Getting a gauge of what’s going on in your world. Thank you very much indeed for that question. Christian Lanng, who is the CEO of Tradeshift.