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Supply chain activity in the transport and logistics sector rose above the expected range for the first time since early 2021. This acceleration across the sector suggests that freight transport is gaining momentum again after six months of congestion. An increase in transaction volume in the transport and logistics sector by seven points indicates that supply chain bottlenecks are easing.
(San Francisco/Munich) The sporadic cases of the Omicron variant dampened the overall dynamics in global supply chains. However, the impact was far less severe than in previous waves. According to the Q4 2021 Index of Global Trade Health from Tradeshift, overall growth in global transaction volume in Q4 2021 remained at the level of the previous quarter. By the end of 2021, the index value was 75. The data suggests that the economy is still far from “normality.” But the fact that recent disruptions have not led to a significant decline in momentum is encouraging.
Global order volumes remained stable, decreasing by 0.5 points in Q4 2021 after a series of ups and downs in previous quarters. The invoicing volume did not accelerate as expected in the fourth quarter. Suppliers continue to struggle to fulfill the existing order backlog.
“We experienced a massive surge in orders in Q2 2021, which should have triggered a flood of invoices for suppliers by the end of the year,” says Christian Lanng, CEO of Tradeshift. “We are seeing early signs that the pressure on supply chains is easing. However, if invoicing volumes continue to follow the current trend, it may still take at least another year to fully reduce the order backlogs.”
Low Invoicing Volumes
Concerns about the spread of the Omicron variant in continental Europe prompted analysts at Oxford Economics to revise their growth forecasts for the region downward. The data from Tradeshift supports this prediction. The growth of transaction volume in the Eurozone decreased by eight points in Q4 2021, falling to an index value of 76.
A decline in invoicing volume by 20 percentage points compared to the previous quarter indicates that rising prices and component shortages continue to hinder order fulfillment. Supply chain bottlenecks are gradually easing. However, price increases and shortages of key components continue to burden suppliers in the industrial core countries of Germany and France. Stricter Covid measures have exacerbated operational challenges for suppliers.
Order activities in the Eurozone climbed back into the expected range in Q4 2021. However, the index value of 92 shows that growth in the fourth quarter is about 12 points below the average quarterly value since the first lockdown. On one hand, this could be a sign that the order situation is beginning to stabilize. On the other hand, it may indicate that challenges in the supply chain are causing buyers to think twice about burdening their suppliers with new orders.
Risk of Further Disruptions in China
In China, strict Covid prevention measures and declining local demand led to a decrease in transaction volume by 10 percentage points compared to the projected range. The index value of 86 for Q4 2021 indicates that cumulative growth in Chinese supply chain activities has reached its lowest level since the beginning of the pandemic. Signs of a prolonged slowdown in Chinese supply chains suggest that further disruptions could be on the horizon.
“China’s decisive action at the beginning of the pandemic allowed local supply chains to get back on track quickly. The same strict policy now seems to have the opposite effect,” Lanng continued. “A series of shutdowns in key industrial regions could lead to further bottlenecks in essential production components, higher order backlogs, and longer delivery times in international markets.”
US Supply Chains Start 2022 Stably
According to the Q4 2021 Index of Global Trade Health from Tradeshift, the recovery of activities in US supply chains continues at a significantly higher level than in the rest of the world. Momentum slightly weakened in Q4 2021. It decreased by one point compared to the previous quarter, but an index value of 97 (compared to a baseline of 100) for the period means that cumulative growth in activity since the pandemic is only 3 points below the pre-pandemic forecast.
Source References:
- https://hub.tradeshift.com/research-and-reports/tradeshifts-index-of-global-trade-health-q4-2021/
- https://blog.oxfordeconomics.com/content/eurozone-another-difficult-winter-ahead-amid-omicron-threat
- https://www.reuters.com/markets/us/us-manufacturing-activity-slows-factory-supply-constraints-easing-ihs-markit-2021-12-16/
- https://www.zdnet.com/article/it-spending-projected-to-grow-to-4-5-trillion-in-2022-gartner/
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