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, which manages a B2B payments network.
The company’s latest Index of Global Trade Health showed total transactions (invoices and orders) between buyers and suppliers on its platform dropped a further seven 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.
Tradeshift’s data suggests suppliers in countries bordering the U.S. are already benefiting from moves by multinationals to “nearshore” their supply chains. Canadian supplier invoices were 3.1 times higher than the average, while invoice traffic from Mexican suppliers has risen at 4.1 times the global average over the past year.
These findings align with a report by Mckinsey that predicts reshoring and nearshoring will relocate up to 26 percent 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 Christian Lanng, CEO and co-founder at Tradeshift.
“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.”
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 percent 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 Lanng.
“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. In the 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 28 points as the Ukraine crisis turbocharged commodities prices and caused further disruption across key supply chains.
In the United States momentum dropped by six points. U.S. ports braced themselves for fresh congestion as a result of lockdowns in Asia while rising energy costs also hit orders.
Transactions in China fell by a further three points in Q1, the third quarter in succession that activity has fallen against the expected range.
In the U.K. 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 Index of Global Trade Health analyzes business-to-business transaction volumes (orders processed from buyers and invoices processed from suppliers) submitted via the Tradeshift platform.