Supply chain activity is beginning to normalize - just don’t call it a comeback (not yet anyway).
The latest numbers from Tradeshift’s Index of Global Trade Health report were released today, and while they paint an encouraging picture about trends in trade and the global economy in general, what lies ahead is still in the balance. For one thing, suppliers are still having a hard time getting the cash they need to run their businesses. Order volumes might be on the up, but lengthy payment terms mean suppliers are having to wait to replenish cash reserves. Also, with many regions and countries on wildly different COVID recovery timelines, it’s hard to predict what lies ahead.
An uneven picture
Clearly, the numbers show that supply chain hubs in Europe, America and China are beginning to stabilize, but the pace of recovery remains uneven and volatile. In the Eurozone, transactions were up 26% in Q3, the largest gain in any market by far. Trade activity between buyers and suppliers in the US also exceeded the global average, growing by 17% during the same period. However, the outlook in the UK was more concerning: after a decent July, a significant drop off in activity during August and September meant that it finished the quarter just 6.1% up on Q2 numbers. Likewise in China, activity levels were rising steadily towards heights not seen since Q4 2019 before tumbling by more than 18% in September.
So, what can we make of this? First of all, pent up, consumer demand created by the coronavirus lockdowns early in the pandemic clearly had an impact on the surge in activity in June and July when restrictions were lifted. “Global lockdown restrictions created a pressure cooker environment for supply chains,” our CEO, Christian Lanng, says. “This momentum continued into July before tailing off rapidly as supply lines normalized.”
Cash is going to be critical to resiliency
With supply chains around the globe starved of cash, the next few months are going to be critical. Remember, the average small business has only 27 days of cash in reserve. The ripple effect of a liquidity crisis could mean lots more bankruptcies among smaller businesses than we’ve already seen. A 20% rise in order volume during Q3 will help, but it may not be enough to get many of these businesses through to the end of the year.
Interestingly, it’s a self-made problem: there are providers out there chomping at the bit to help inject much-needed liquidity into supply chains that could save many of these smaller businesses, but lack of digitization is holding them back. “Lack of digitization in global supply chains makes it very hard to unlock the liquidity that’s owed to suppliers,” Christian said. ”Instead of getting paid quickly, suppliers have to wait months before orders translate into cash. If ever there was a time to rip up the old playbook and start doing things differently, it is now.”