Global Trade Woes Persist for Fifth Quarter
Tradeshift’s Q1 of 2023 Index Results
By Harry Ronaldson, Global Director Brand and Communications at Tradeshift
The aftermath of the pandemic continues to wreak havoc on global retail supply chains, as evidenced in Tradeshift’s Index of Global Trade Health. The start of 2023 saw a significant inventory glut that has left businesses reeling from the costly consequences. Q1 trade activity in the sector plummeted to a new two-year low, landing 12 points below the anticipated range.
Additionally, demand for transport and logistics capacity remained low, falling a significant 9 points below baseline levels. These indicators suggest a broader economic slowdown that could have far-reaching consequences for the industry moving forward.
Keep reading to see the standout data from the most recent Tradeshift Index, plus our top three takeaways illustrating what these findings mean for you now and in the near future.
Global Slowdown Hits Supplier Cash Flow
Total transaction volumes across all sectors fell to 5 points below the expected range, marking the fifth consecutive quarter that global trade activity has remained in contraction territory. New invoices from suppliers fell sharply in Q1 off the back of a steep decline in order volumes over the previous two quarters.
“Large buyers are coming out of a nasty bullwhip cycle,” said Christian Lanng, CEO at Tradeshift. “We’ve seen orders fall consistently over the past six months as organizations attempt to rebalance inventory levels. Order volumes picked up momentum in Q1, but in the short term, we’ll see a liquidity gap opening up that will hit supplier cash reserves. With the cost of borrowing rising, businesses are looking at ways to monetize new orders and turn them into cash faster. We’ve seen a spike in demand for services such as invoice financing.”
Tradeshift’s Takeaway #1: Closing the Liquidity Gap
What this means for you: The inventory glut triggered a bonfire of orders over the past six months. Suppliers are now feeling the impact of that in terms of pressure on cash flow. Orders seem to be recovering, leaving a liquidity gap for suppliers to contend with.
Our take: Buyers are under pressure to manage working capital very carefully. Typically that means extending payment terms or delaying payment to suppliers. This puts pressure on supplier cash flows that can quickly cause problems. A new generation of embedded financing services offers a solution. Buyers can continue to manage their working capital needs prudently, while suppliers can access fast and predictable payment on any outstanding invoices.
Brighter Outlook for the US
US trade activity mirrored the global pattern. Transaction volumes tracked 6 points below the expected range, primarily due to a steep decline in supplier invoices. A solid recovery in ordering activity during the quarter hinted at a brighter outlook in the months ahead. Order volumes in the US finished Q1 at a year high.
“The good news, both in the US and at a global level, is that orders are starting to rise again, suggesting a period of readjustment that, while painful, is at least temporary.” – Christian Lanng, CEO of Tradeshift
Tradeshift’s Takeaway #2: Long-term Forecasting Doesn’t Work Anymore
What this means for you: While the overall picture suggests a downward trend and a slowing global economy, at a regional level, it’s very much a mixed bag at a regional level. Whether it’s Brexit in the UK or consumer spending patterns that switch on a dime in the US, accurate, long-term forecasts are hard to come by.
Our take: Relationships and collaboration between buyers and suppliers must become far more agile. As an example, Niels Boersema, supply chain integration manager at Danone, uses Tradeshift to share forecasts and inventory with suppliers. He also translates that information into raw materials forecasts, which can be shared with 2nd and 3rd tier suppliers.
China’s Factories Spring Into Action
Transaction volumes in China climbed back into the expected range in Q1 for the first time in 21 months following December’s lifting of strict Covid prevention measures. However, supply chain operators will be nervous about the broader global slowdown. Furthermore, China’s dominance of global manufacturing supply chains also faces erosion from accelerating diversification efforts among Western companies. Tradeshift’s latest Index shows trade activity in Vietnam rising five times faster than the global average over the past year. Activity levels in Mexico rose six times faster than the worldwide average during the same period.
Tradeshift’s Takeaway #3: Diversification Is Gathering Momentum
What this means for you: We’ve seen supplier diversification efforts accelerating as buyers look to build resilience across their supply chains. Increasingly businesses are looking beyond traditional manufacturing hubs to locations either closer to home or in politically neutral areas.
Our take: Diversification requires procurement teams to quickly identify, vet, and onboard large numbers of new suppliers. Procurement teams using outdated 20th-century models and technologies will struggle to deliver the ingredients businesses need to remain agile. Analyst firm IDC has shown how cloud-based B2B marketplaces help organizations build resilience by providing easier access to a large selection of pre-vetted suppliers in multiple locations.
Eurozone and UK Get a Reality Check
After a strong Q4, trade activity across the Eurozone fell again in Q1, dropping to 8 points below the expected range. Supply chains across the UK also had a more challenging start to 2023. Transaction volumes dipped to 7 points below the expected level. UK trade activity could also face a tough six months ahead, with order volume growth crashing to 10 points below the baseline in Q1.
“The UK is attempting to implement supply chain reconfiguration at massive scale, but they’re doing this on top of processes and infrastructure that simply aren’t built for change,” said Lanng. “As businesses evaluate their reconfiguration strategies, they would do well to look at the systems and processes they have in place to identify, vet, and onboard new suppliers. Procurement teams using 20th-century models and technologies will struggle to deliver the ingredients businesses need to remain agile.
Don’t miss out on a single insight surrounding the often tumultuous world of global trade. For Q1 of 2023, we have you covered. Check out the entire Index here to see the full picture.