Will Red Sea Turmoil Derail the Nascent Upturn in Global Trade?

By James Stirk, CEO, Tradeshift

Did global trade bottom out at the end of 2023? And is a recovery now on the cards after an eighteen-month slowdown? These are the questions that emerged from Tradeshift’s Q4 Index of Global Trade Health following a surprising surge in order volumes at the end of the year.

Order volumes have been falling since the second half of 2022, driven by weakening demand for manufactured goods and a series of macroeconomic headwinds. We saw the first signs of a break in this pattern in the fourth quarter when activity spiked to a surprising five points above the expected range.

Cautious Optimism on Global Trade

The trajectory of order volumes offers insights into how large organizations perceive the forthcoming six months. A sharp increase in activity – albeit from a relatively low base – is potentially significant, as it suggests that large companies are betting on an upturn in demand for goods over the coming year. 

If the general upturn in new orders continues into the next quarter, it could signal the early stages of a recovery in global trade next year. However, a fresh wave of disruption to key trade routes puts a different complexion on things.

Fresh Disruption or ‘Permacrisis’?

Companies that developed new supply chain strategies in response to the COVID-19 pandemic have been forced to implement these plans more quickly than anticipated due to disruptions to key trade corridors through Panama and the Red Sea.

A confluence of extreme weather events and geopolitical tensions typifies a period in which the term ‘permacrisis’ has entered the lexicon. And while supply chain operators are showing signs that they are taking resilience seriously, the return of shipping delays and bottlenecks caused by the spate of attacks on shipping in the Middle East is bringing a renewed focus on how easily the current system can break down if one link comes under pressure. 

A Focus On Supply Chain Resilience

Given the growing number of variables, staying focused on the broader strategic picture becomes challenging. However, the fundamentals of resilience, and in particular agility, remain of paramount importance in navigating such unpredictable conditions.

Companies need to look at how they can increase the speed of decision-making across their supply chain so that they can adapt their activities to conditions that remain highly fluid. The only way to do this is to become more digital. By leveraging digital connectivity, companies can improve their supply chain risk management strategies, moving beyond ‘best guess’ to informed decision-making with shared visibility across all stakeholders.

Danone is a great example of a company using the digital connectivity it has established with its supplier base through Tradeshift to share critical inventory and forecast information across the supply chain. 

The Network Effect

Ultimately, the most efficient and resilient supply chains manifest as digitally connected ecosystems that include suppliers, distributors, retailers, and all other manufacturer partners. This B2B marketplace model enables real-time information sharing, agile planning, and effective communication between partners.

Such initiatives are typically driven by buyers, but any attempt to force suppliers to adopt systems that have traditionally been designed specifically and exclusively for buyers is likely to fall flat. Digitising the buyer-supplier relationship requires both parties to feel they’re getting real value from the transition. 

Shared Value

Tradeshift’s philosophy prioritises the value proposition for suppliers, and it’s this approach that enables us to digitise entire supply chains at speed and scale. Our partnership with HSBC, a world-first in the provision of embedded fintech services, further strengthens the compelling value proposition for companies joining the Tradeshift network.

2024 may yet prove to be a turning point for global trade, but the balance of evidence suggests that there will be no respite from the volatility that has characterised the 2020s so far. The upturn, when it comes, will depend to a large extent on the agility that businesses can draw on to deal with a wide range of challenges, both new and familiar.