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Supply chains “back to square one”

War in Ukraine and lockdowns in China have sent global order volumes tumbling in the first three months of 2022 according to new data from Tradeshift, the B2B payments network connecting commerce across supply chains.

Tradeshift’s latest Index of Global Trade Health showed total transactions (invoices and orders) between buyers and suppliers on its platform dropped a further 7 points below the forecast range in the first quarter of 2022. Order volumes were particularly badly affected by a cocktail of high inflation, longer lead times and key component shortages. New orders tumbled by 16 points in Q1, the steepest loss of momentum since the first lockdowns in 2020.

With large organizations seemingly bedding in for a challenging period, suppliers are likely to come under renewed cash flow pressure over the coming months as big businesses look to preserve their own cash reserves. Tradeshift’s data shows late supplier payments averaged 15.9% of the total volume over the past six months, nearly double the number in the six months prior to the pandemic.


“Russia’s aggression in Ukraine and the lockdowns in major cities across China are creating a convergence of new and familiar pressures,” said Christian Lanng, CEO and co-founder at Tradeshift. “Building up cash reserves might seem like an act of self-preservation on the part of buyers, but it can quickly become an act of self-harm when suppliers start to struggle. Large organizations need to stop seeing suppliers as a cheap line of credit and start looking at financing options that keep both them and their suppliers solvent in a highly volatile environment.”

Tradeshift’s analysis indicates that buyers and suppliers are facing a similar range of pressures in supply chain hubs across the world:

- Eurozone: transactions fell a further 14 points against the expected range, wiping out much of the recovery of the past 18 months. Order volumes dropped by an alarming 28 points as the Ukraine crisis turbocharged commodities prices and caused further disruption across key supply chains.
- US: momentum dropped by 6 points. US ports braced themselves for fresh congestion as a result of lockdowns in Asia while rising energy costs also hit orders
- China: Transactions fell by a further 3 points in Q1, the third quarter in succession that activity has fallen against the expected range.
- UK: Total transaction growth was a point higher than the forecast range in Q1, but overall growth since the pandemic is still barely half the expected level.

Tradeshift’s data suggests suppliers in countries bordering the US are already benefiting from moves by multinationals to “nearshore” their supply chains. Invoice traffic from Mexican suppliers has risen at 4.1 times the global average over the past year. Canadian supplier invoices were 3.1 times higher than the average. The findings align with a report by Mckinsey that predicts reshoring and nearshoring will relocate up to 26% of world production in the next five years.

“2022 has opened a new chapter in what has become an age of uncertainty for global trade,” said Lanng. “In this new reality backlogs and breakdowns are becoming the new normal while connectivity, transparency and agility are basic operating principles rather than vague ambitions. Globalization may well be on the wane, but resilience will depend on supply chains becoming more connected, more diverse, and more collaborative than ever.”

https://tradeshift.com/global-trade-report/

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