Inventory glut hits suppliers as global trade slowdown extends

In Q2 2023, Global retail supply chains were left to count the cost of a post-pandemic inventory glut at the start of 2023, according to the latest Index of Global Trade Health from Tradeshift. Trade activity across the sector dropped 12 points below the expected range in Q1, a two-year low. Demand for transport and logistics capacity also remained low, at 9 points below the baseline, amid signs of a broader economic slowdown.

Total transaction volumes across all sectors fell to 5 points below the expected range, marking the fifth consecutive quarter that global trade activity has remained in contraction territory. New invoices from suppliers fell sharply in Q1 off the back of a steep decline in order volumes over the previous two quarters. 

“Large buyers are coming out of a nasty bullwhip cycle”, said Christian Lanng, CEO at Tradeshift. “We’ve seen orders fall consistently over the past six months as organisations attempt to rebalance inventory levels. Order volumes picked up momentum in Q1, but in the short term, we’ll see a liquidity gap opening up that will hit supplier cash reserves. With the cost of borrowing rising, businesses are looking at ways to monetize new orders and turn them into cash faster. We’ve seen a spike in demand for services such as invoice financing.”

US trade activity mirrored the global pattern. Transaction volumes tracked 6 points below the expected range, primarily due to a steep decline in supplier invoices. A solid recovery in ordering activity during the quarter hinted at a brighter outlook in the months ahead. Order volumes in the US finished Q1 at a year high.

Transaction volumes in China climbed back into the expected range in Q1 for the first time in 21 months following December’s lifting of strict Covid prevention measures. However, supply chain operators will be nervous about the broader global slowdown. Furthermore, China’s dominance of global manufacturing supply chains also faces erosion from accelerating diversification efforts among Western companies. Tradeshift’s latest Index shows trade activity in Vietnam rising five times faster than the global average over the past year. Activity levels in Mexico rose six times faster than the worldwide average during the same period.

After a strong Q4, trade activity across the Eurozone fell again in Q1, dropping to 8 points below the expected range. Supply chains across the UK also had a more challenging start to 2023. Transaction volumes dipped to 7 points below the expected level. UK trade activity could also face a tough six months ahead, with order volume growth crashing to 10 points below the baseline in Q1.

“The UK is attempting to implement supply chain reconfiguration at massive scale, but they’re doing this on top of processes and infrastructure that simply aren’t built for change,” said Lanng. “As businesses evaluate their reconfiguration strategies, they would do well to look at the systems and processes they have in place to identify, vet and onboard new suppliers. Procurement teams using 20th-century models and technologies will struggle to deliver the ingredients businesses need to remain agile.”

About Tradeshift’s Index of Global Trade Health 

Tradeshift’s Index of Global Trade Health analyses business-to-business transaction volumes (orders processed from buyers and invoices processed from suppliers) submitted via the Tradeshift platform to offer a perspective of how external events may be impacting business-to-business commerce in a variety of different regions and sectors across the globe.