Inside Logistics

Global trade activity falls almost 15 percent in Q2

China's bounceback could set pattern for Western economies


July 16, 2020
by

SAN FRANCISCO – Global trade fell 14.8 percent in the second quarter of 2020. But evidence of an upward curve in June suggests the impact of the Covid-19 pandemic could bottom out at the lower end of the 13 to 32 percent range predicted by the World Trade Organization.

According to Tradeshift’s Global Index of Trade Health report, the U.K. experienced the biggest drop in trade among western economies during Q2, with transaction volumes falling by 23.1 percent. Transaction volumes across the Eurozone fell by 21.9 percent, while activity in the US was down 16.1 percent.

China, which experienced the most significant impact on trade in Q1, saw trade activity rise by 31.8 percent in Q2. Transaction volumes in China surged b 430 percent when factories reopened at the end of February. Activity rose by a further 14 percent as lockdown restrictions began to ease in April, but this momentum has begun to plateau.

Average weekly transactions in China have fallen by eight percent since the week commencing 15th June, and as impressive as the country’s bounce back has been, trade activity in the last two weeks of June remained 22 percent lower than the levels Tradeshift saw on its platform in the final quarter of 2019.

“China’s bounce back provides a useful indicator of what the shape of recovery could begin to look like as other countries start to bring the spread of the virus under control,” said Christian Lanng, CEO, Tradeshift.

“A huge domestic market gives China certain advantages in terms of the speed of its recovery. But the interconnected nature of global supply chains means that not even China can fully recover in isolation. The whole ecosystem needs to be in good working order. Right now, that is not the case.”

For economies in the West, the green shoots of recovery have begun to emerge, but the overall picture remains volatile. After record lows through April and May, order volumes have begun to trend upwards over the past month. The Eurozone has benefited the most from a “post-lockdown bounce,” with the number of orders rising 24 percent in June compared to lows in April.

Order volumes in the U.S. and the U.K. have also begun to increase since the end of May, but the surge in activity has been far less pronounced.

And while order volumes are trending upwards, payments to suppliers are not keeping pace with the recovery. Invoice volumes across the E.U., U.K. and U.S. fell by 19 percent as a whole in Q2, and while activity is picking up heading into Q3, it is doing so slowly. With many suppliers running low on cash after a prolonged period of inactivity, lack of working capital flowing through supply chains could well prevent these suppliers from fulfilling orders, putting a brake on recovery.

“Trying to restart supply chains without fast and predictable access to working capital is a little like trying to start a car without any gas in the tank. It doesn’t get you very far,” Lanng said.

“Government stimulus has done a great job insulating businesses from the very worst of lockdown. But as we enter a new chapter in the pandemic, we need to start looking at fresh ways to unlock liquidity and get it flowing quickly to cash-starved suppliers.”