Tradeshift Index Sees Supply Chains ‘Back to Square One’

25. April 2022

The geopolitical tensions and renewed lockdowns in China pose significant challenges for logistics companies. Tradeshift data shows that the transaction volume across the transport and logistics industry remains higher than expected, indicating fierce competition for limited capacities.

(Kopenhagen/München) Russian aggression against Ukraine is sending global supply chains into free fall and driving energy shortages and commodity price volatility. Order volumes are declining more sharply than ever since the first supply bans. Late payments to suppliers have doubled compared to the six months before the pandemic. Suppliers in Mexico and Canada are seeing an increase in activity as U.S. companies move their sourcing closer to home. McKinsey forecasts that up to 26 percent of global production will be shifted through reshoring and nearshoring in the next five years.

The war in Ukraine and the lockdowns in China have caused global order volumes to plummet in the first three months of 2022, according to new data from Tradeshift. The Q1 2022 Index of Global Trade Health from Tradeshift shows that total transactions (invoices and orders) between buyers and suppliers on the platform fell another 7 points below the forecast range in the first quarter of 2022. Order volumes were particularly affected by a mix of high inflation, longer delivery times, and shortages of key components. Order intake fell by 16 points in the first quarter, marking the steepest loss of momentum since the initial lockdowns in 2020.

Supplier Payments Continue to Be Significantly Delayed

Large companies seem to be bracing for a tough time and are holding back their own cash reserves. This has implications for suppliers, who will come under pressure again in the coming months. Current data from Tradeshift shows that the number of late supplier payments averaged 15.9 percent of the total volume over the last six months, nearly double the rate in the six months prior to the pandemic.

“Russia’s aggression in Ukraine and the lockdown of major cities across China are leading to a convergence of new and familiar pressures,” says Christian Lanng, CEO and co-founder of Tradeshift. “Building cash reserves may seem like an act of self-preservation on the part of buyers. However, it can quickly become an act of self-harm when suppliers begin to struggle. Large companies need to stop viewing suppliers as a cheap line of credit. Instead, they should start looking for financing options that keep both themselves and their suppliers solvent in a highly volatile environment.”

Eurozone Facing Further Strains

Transactions fell another 14 points below the expected range, undoing much of the recovery of the past 18 months. Order volumes dropped by an alarming 28 points as the Ukraine crisis drove up commodity prices and caused further disruptions in key supply chains.

In Germany, 40 percent of industrial companies reported expecting issues with supply bottlenecks, according to the think tank IW. Automakers have closed assembly lines due to a shortage of wiring harnesses produced in Ukraine by the German company Leoni.

The invoice volume remained relatively robust in the first quarter of 2022, suggesting that suppliers are still working through a backlog of existing orders. Some bottlenecks may ease, but the outlook indicates that several difficult months lie ahead as new disruptions arise. According to JP Morgan, the Asia-Europe routes are most affected by issues such as acute port congestion and disruptions in freight traffic due to the closure of Russian airspace. Given the rigidity of most supply chains, it is likely to prove very difficult to find quick and viable solutions to these problems.

USA, China, and the UK Under Similar Pressure

USA: Momentum decreased by 6 points. U.S. ports are bracing for new congestion due to lockdowns in Asia. Rising energy costs are also impacting orders.

China: Transactions fell another 3 points in the first quarter of 2022, marking the third consecutive quarter where activity has lagged behind expectations.

UK: Overall transaction growth in the first quarter was one point above the forecast range, but overall growth since the pandemic is still barely half of what was expected.

Reshoring and Nearshoring on the Rise?

Commentators like Blackrock CEO Larry Fink believe that the war in Ukraine will prompt companies to pull back from their global supply chains. Meanwhile, McKinsey predicts that up to 26 percent of global production will be shifted through reshoring and nearshoring in the next five years. Tradeshift data suggests that suppliers in countries adjacent to the U.S. are already benefiting from multinational companies’ efforts to “nearshore” their supply chains. The invoicing volume of Mexican suppliers has increased 4.1 times the global average over the past year. Invoices from Canadian suppliers were 3.1 times higher than the average.

“The year 2022 has opened a new chapter in an era of uncertainty for global trade,” Lanng continued. “In this new reality, backlogs and disruptions will become the new normal, while connectivity, transparency, and agility will be more fundamental operational principles than vague ambitions. While globalization may be in retreat, resilience will depend on supply chains becoming more interconnected, diverse, and collaborative than ever before.”

The complete Q1 2022 Index of Global Trade Health is available for download in English on the Tradeshift website.

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About the Tradeshift Index of Global Trade Health

Many of the world’s largest buyers and their suppliers use Tradeshift’s trade technology platform to exchange digitized purchasing and invoicing data. The index analyzes anonymized transaction data flowing through the platform. Tradeshift defines transaction volume or supply chain activities as all trade activities and claims from supplier payments. The index provides a timely overview of how external events impact business-to-business trade. Additional surveys and customer interviews complement the report.