Supply Chains In Crisis: Costs Continue To Rise, Order Volumes Are Falling

Global supply chains slowed for the second straight quarter in the second quarter, falling another six points. That’s according to Tradeshift’s new Index of Global Trade Health.

Order volumes across Tradeshift’s network fell to a new low in the second quarter and declined another six points. The supply chain index had already fallen by seven points in the previous quarter, according to Tradeshift’s Index of Global Trade Health report. The lack of new orders is beginning to affect suppliers, who until recently have been struggling to cope with rising demand. The number of invoices submitted by suppliers fell seven points in the second quarter, the sharpest decline in a year.

Orders may be softening, but Tradeshift’s analysis shows that costs have risen sharply since the beginning of the year. The average value of an invoice submitted on Tradeshift’s platform has increased by 11 per cent since 2022, compared to a more modest 3.5 per cent increase in 2021.

Various Challenges Affect The Global Economy

The current wave of inflation has multiple causes, some of which are related to the pandemic. Supply chain disruptions occur time and again throughout the global economy. Covid-19 cases in China and the imposition of lockdown measures continue to cause problems. Russia’s invasion of Ukraine further increases pressure, particularly on energy and food prices.

“Many of the current supply chain challenges, including inflation, have their roots in the pandemic. Some of these issues are temporary, but the larger issues, such as labour shortages, geopolitical tensions and the energy transition, are structural and risk entrenching unless companies act decisively now”.

Supply Chains Are Developing Similarly Around The World

Tradeshift’s analysis reveals a remarkably similar pattern across regional supply chains around the world:

• Total trading activity in the UK and euro area fell five points. Incoming orders and supplier invoices were below the expected range.
• US supply chains performed slightly better than the global average. The transaction volume in the second quarter was four points below the expected range. But the volume of new orders is still low.
• China trade had another challenging quarter, as new lockdown measures in key cities helped push transaction volume down another seven points from the expected range.

In the first quarter of 2022, the outbreak of war in Ukraine triggered the sharpest drop in activity measured on the Tradeshift platform since the first days of the pandemic. In the second quarter, the impact was far less severe. Total trading activity was just 6 points below baseline compared to 14 points in the first quarter. Invoice volumes lost momentum in the second quarter. That suggests the drop in orders from the first quarter is starting to spill over to suppliers. Order volume rebounded in the second quarter, but growth is slower than expected. It remains below baseline compared to the previous quarter.

Covid-19 And Ukraine War Cause Supply Chain Disruptions

According to a recent report by Accenture, the disruptions caused by Covid-19 and the war in Ukraine could cause the euro area GDP to fall by up to €920 billion (or 7.7 per cent) by 2023. A raft of regulations designed to decarbonize supply chains will likely pose further challenges and even higher costs in the near term. But focusing on sustainable procurement and green energy could be Europe’s best hope for breaking the current cycle.

Reduced Activities In The Transport And Logistics Industry

Tradeshift data suggests that falling demand also leads to a slowdown in transportation and logistics industry activity. Transaction volumes fell below the expected range for the first time in a year. That’s after activity fell five percentage points from the previous quarter. Manufacturing and retail activity also fell short of expectations. Technology spending recovered significantly in the second quarter. The activity was within the forecast range.

“It would be a natural reaction for entrepreneurs to pop their corks and wait for the current storm to pass. But many of the problems supply chains face today will still exist a year from now. How long can a company hold its breath before running out of breath? Most executives I speak to have an eye on the horizon. They drive the urgently needed technological investments to become more flexible, resilient and sustainable”.