The Tradeshift
Index of Global
Trade Health
Q1 2023

The Tradeshift Index of Global Trade Health | Q1 2023

Inventory
glut provides
anotherstress test for
supply chainsSupply chains are back to normal. At least
that’s according to The New York Federal
Exchange1, whose Supply Chain Pressure
Index tipped into negative territory in February
for the first time since August 2019.
Our Index has been showing us signs of a broader
slowdown in trade activity for a year now. That trend
continued in Q1, with global transaction volumes
across our network tracking at 5 points below the
expected range. This trend, combined with the
opening up of key freight routes out of China, hastaken the heat out of overburdened supply lines,
making it easier for businesses to secure the goods
they need at the time they need them. So, on one
level, at least, the New York Fed makes a solid point.
But normal remains a fairly broad spectrum.
In the UK, for example, salad remains off themenu as the great post-Brexit supply chain
reconfiguration forces supermarkets to startrationing tomatoes. At the other extreme, spare athought for the toy manufacturer who recently had
to incinerate $30 million of excess inventory they
could no longer afford to store in warehouses.
Large buyers headed into 2023 still dealing with amassive post-pandemic inventory glut. Retailers,in particular, have found themselves with piles of
unsold inventory ordered at a time when consumer
spending patterns looked very different.
Our Q4 Index suggested organizations were putting aheavy brake on new orders as they tried to rebalance.
We’re now seeing evidence of that ordering purge
hitting suppliers. In the US, invoice volumes fell to 7
points below the baseline in Q1, following an equivalentdrop in order volumes in the previous quarter.

The good news, both in the US and at a global
level, is that orders are starting to rise again,
suggesting a period of readjustment that, whilepainful, is at least temporary. These are positive
signs, suggesting a level of confidence across large
buyers that has been lacking over the past year.
The picture in the Eurozone is a bit different.
After a solid end to 2022, our Q1 data proveda reality check for supply chain operators
grappling with stubborn inflation and a raftof economic headwinds. Total trade activity
across the region fell to 8 points below thebaseline in Q1. The UK also had a tough start
to the year, with activity levels slipping to 7
points below the expected range. UK ordervolumes also crashed to 10 points below thebaseline, suggesting a challenging outlook.
There was better news in China, where
supply chain activity climbed back into the
expected range for the first time in 18 months.
However, China faces its own balancing act,
as escalating tension with the West triggers
large buyers to reevaluate their reliance on
China as a critical link in their supply chains.
Reshoring, nearshoring, and ‘friendshoring’ areon the up. Our data shows eye-catching growthin trade activity across Vietnam, Mexico, andto a lesser extent, Malaysia and India. In an
increasingly polarized world, supply lines arebeing redrawn, and it looks increasingly like thesecountries will be among the primary beneficiaries.

1 Reuters, NY Fed says supply chain pressures normalized in Februaryp.3

Q4 2023
2022
The Tradeshift Index of Global Trade Health | Q1

Key findings
at a glance1. Global trade activity dropped to 5 points
below the baseline due to a slowing
economy and an inventory glut.
2. Demand across the T&L sector continues tosoften. Activity levels across the sector finishedQ1 9 points below the expected range.
3. Retailers, in particular, are feeling the effects of postpandemic inventory rebalancing. Activity across thesector fell to 12 points below the expected range.
4. Low order volumes have left suppliers facing
a short-term liquidity crunch. The number of
invoices processed in Q1 dropped to a yearlow of 7 points below the baseline.

6. China’s reopening triggered a sharp rise inactivity. Transaction volumes climbed backinto the expected range for the first timein two years. But the outlook is complex.
7. Trade activity in Mexico and Vietnam
has grown at multiples of the global
average in the past year as businesses
accelerate diversification efforts.
8. After a strong Q4, activity in the Eurozone
fell to 8 points below the expected range.
UK trade activity dropped to -7 points.

5. Trade in the US remained low, at 6 points
below the baseline, but rising ordervolumes suggest a brighter outlook.

p.5

The Tradeshift Index of Global Trade Health | Q1 2023

Volatility
snapshot
Quarterly growth in world tradeactivity across the Tradeshift network
indexed against historical trends.

p.7

The Tradeshift Index of Global Trade Health | Q1 2023

Global view: China is on the up, butsoftening global demand could spoil
Transaction volumes - quarter on quarter

Transaction
volumes- quarteron quarter
growthindexed against historical trends
growthindexedagainsthistorical
trends
20

10

0

-10

-20

-30
Q4’20

Q1’21

Q2’21

Q3’21

GlobalQ4’21
USChina’s removal of Covid restrictions in December
lifted supply chain activity across the country in
Q1. Transaction volumes climbed back into the
expected range for the first time in 21 months.
China’s massive domestic market should keep local
factories busy. But export-focused businesses will
have a nervous eye on the broader picture globally,
where trade activity continues downward.
Global trade activity dipped to 5 points below the
expected range in Q1, and this appears consistent
with a broader slowdown across major economies.
US transaction volumes remained 6 points
lower than the baseline in Q1. Several leading
economic indicators suggest the US economy
has been growing slower than expected since
the end of 2022. Well-publicized issues in thebanking sector are adding to the uncertainty.

Q1’22
EUR

Q2’22
UK

Q3’22

Q4’22

Q1’23

CNY

But consumer spending remains robust, and the low
activity we’re seeing may simply be the tail end ofa bullwhip cycle. We’ll know more next quarter.
Trade activity across the Eurozone recoveredin Q4 thanks to falling energy prices and ageneral easing of supply chain bottlenecks. Q1
proved a reality check in reasonably challenging
trading conditions across the region.
Economists at ING have pointed to stagnation acrossthe Eurozone as consumers tighten their belts. Our datashows transactions falling firmly back into contraction
territory in Q1 at 8 points below the baseline. A similar
pattern is evident in the UK, where trade activity
finished Q1 7 points below the expected range.

Cash flow: Suppliers counting thecost of inventory rebalancing
Invoice and order volumes - quarter on quartercomparison, indexed against historical trends

Invoice and order volumes - quarter on quarter comparison, indexed against historical trends

Q4’20
Q1’21
Q2’21
Q3’21
Q4’21
Q1’22
Q2’22
Q3’22
Q4’22
Q1’23
-30.0

-20.0

-10.0

0.0
Invoices

A post-pandemic bullwhip cycle left supply chainsworking through a chronic case of indigestion in thesecond half of 2022. In a slowing economy, keeping
warehouses full of inventory no longer stacks up.
Research by HSBC2 claims companies increased
inventory by an average of 39% in the past two years
to mitigate against severe disruption. Order volumes
on our platform have since dropped as buyers tried torealign inventory volumes with changes in consumer
spending. That readjustment appeared to bottom out
at the end of 2022, but we now see evidence that thisbonfire of orders is hitting suppliers.
Invoice volumes on the Tradeshift platform fell to 7
points below the baseline in Q1, the most significant
reversal in two years. Suppliers will feel this in theform of lower cash flow. Ratcheting interest rates
and well-publicized issues in the banking sector willcomplicate matters further.

10.0

20.0

30.0

OrdersThe outlook is more positive. Order volumes remainedin contraction territory in Q1, but only just, and trending
upwards. We should see a corresponding uptick ininvoice volumes. But this won’t happen quickly. HSBC
found2 that suppliers are waiting an average of 56 days
between submitting their invoices and receiving payment,
and buyers have no intention of changing those terms in
the foreseeable future. Payment terms of 120 days andmore are also not uncommon. That leaves a gap of aquarter or more before suppliers see the benefit from any
normalization in ordering activity.
Access to capital through traditional lending services
has become increasingly prohibitive, and we expect
a considerable rise in demand for alternative funding
sources. With suppliers seeking ways to unlock fasterand more predictable access to working capital, HSBC’s
research2 shows a particular spike in demand forreceivables financing services.
2 HSBC, Global Supply Chain Networks of Tomorrow

p.9

The Tradeshift Index of Global Trade Health | Q1 2023

Emerging marketings: Supply chain
diversification bearing fruit
Transaction
volume growthyear-on-yearcomparison
across selectedTransaction
volume- growth- yearon year comparison
across selectedmarkets, benchmarked against the rate of growth globallymarkets, benchmarked against the rate of growth globally

Growth multiple compared to global average

6

4

2

0

MexicoVietnamTurkeyMalaysia

India

Apple announced in December3 that it plans tomove production out of China, telling suppliers to
prepare more actively to assemble its products
elsewhere in Asia, particularly India, and Vietnam.

Our data shows transaction volumes growing five times
faster than the global average over the past year. For
similar reasons, trade activity in Malaysia and India has
also risen two times faster than the worldwide rate.

Apple isn’t the only large organization trying toshake its reliance on Chinese factories in its supply
chain. A combination of ratcheting geopoliticaltension and pure economics is accelerating moves
to reshore, nearshore, and ‘friendshore’ production.

Mexico’s proximity to the US makes it an obvious
choice for businesses looking to bring production closer
to home. We’ve seen the volume of trade activity in
Mexico rise six times faster than the global averageover the past year. The Mexican government says
more than 400 companies5 currently have shown
interest in moving production from Asia to Mexico.

A survey conducted by the European Union Chamberof Commerce4 found 23 percent of Western firms
said they were considering moving operations
away from China. Vietnam has been one of the
primary beneficiaries of this reconfiguration. Its
low-cost labor market and relative neutrality make
Vietnam particularly attractive for companies
evaluating a ‘‘China plus one’ strategy.

3 Wall St. Journal, Apple Makes Plans to Move Production Out of
China
4 Bloomberg, Nearly One in Four European Firms Consider Shifting
Out of China
5 Wall St. Journal, Mexico’s Industrial Hubs Grow as Part of Trade
Shift Toward Nearshoringp.11

The Tradeshift Index of Global Trade Health | Q1 2023

Q1
momentumdeep-dive
Quarter-on-quarter world tradeperformance across key territories

p.13

The Tradeshift Index of Global Trade Health | Q1 2023

US: Outlook brightens on risingorder volumes
US trade activity - quarter on quarter index scores

94

93

Below expected range

99

Within expected range

Above expected range

Swing vs previous quarter:

0-2

Trade activity in the US finished the year firmly in the
red zone. And on the surface, at least, things haven’t
improved much in 2023, with transaction volumes
remaining 6 points below the expected range.
Quarterly trading updates across the US have been
awash, with stories of excess inventory hitting bottomline performance in the second half of 2022. Ordervolumes on our platform dropped sharply in Q4 asbuyers sought to wipe the slate clean.
The hold on fresh orders in the second half of 2022 has
now made its way through to suppliers. This explains
the drop in invoice volumes we’re seeing in Q1, which isweighing down total transaction figures.

6 Reuters; US manufacturing activity nears three-year low;
price pressures abate+8
The outlook is more positive, however, as we begin
to see signs that this inventory glut may be working
itself out. For the first time in a year, ordering activity
has started to rise again, with volumes tracking at very
close to the expected level.
All being well, invoice volumes should start to tick up
in Q2. The big question is whether orders will start todrop again. Consumer spending in the US showedsigns of resilience in Q1, but the banking crisis has
some economists predicting a hard landing for the
US in the latter half of 2023. And while our own datashows a general upward trend in ordering activity, it
is worth noting that ISM’s data6 shows manufacturing
orders at a 3-year low in March.

Eurozone: Volatile trading environment
triggers a sharp reversal
Eurozone trade activity - quarter on quarter index scores

92

91

Below expected range

Within expected range

94

Above expected range

Swing vs previous quarter:-5
The Eurozone finished 2022 on the up. Q1
appears to have brought things back to Earthwith a bump as transaction volumes across theregion fell to their lowest levels in more thana year. In contrast to the US, invoice volumes
and ordering activity both fell in Q1.
Economists admit that the jump in GDP reportedby the Eurozone in Q4 caught them by surprise.
They’re now seeing economic sentiment begin to dip
again. The recovery we saw in Q4 may well havebeen a reaction to positive news across a numberof fronts, including stabilizing energy prices andthe continued easing of supply chain bottlenecks.

-4-5

Accurate forecasts have been hard to come by in theEurozone, and if our latest data proves anything at all, it’sthat the trading environment remains volatile and difficult
to judge for supply chain operators across the region.
The good news is that the drop in order volumes
we’ve seen in Q1 is nothing like the alarming slump
we witnessed at the beginning of last year when theoutbreak of war in Ukraine sent commodity prices
soaring. Order volumes dropped to 33 points below
the baseline in Q1 2022. The fall in activity we’veseen in Q1 is far less alarming. More accurately, it’s areality check on the current demand cycle across theEurozone - contracting but by no means crashing.

p.15

The Tradeshift Index of Global Trade Health | Q1 2023

UK: Orders evaporate as UK businesses
confront the realities of Brexit
UK trade activity - quarter on quarter index scores

93

95

Below expected range

90

Within expected range

Above expected range

Swing vs previous quarter:-4-3

Just like its neighbors in the Eurozone, trade activity
in the UK staged a minor recovery at the end of2022. And just like the Eurozone, 2023 has brought itback down to Earth. Our Q1 data shows transaction
volumes tracking at 7 points below the baseline.
Most alarming is the steep decline in ordering activity
we’ve seen this quarter. Order volumes fell to 10
points below the baseline, the lowest level in a year.
The gloomy figures mirror wider sentiment in the
UK economy. The IMF predicts7 that the UK will be
the worst-performing major economy this year andthe only country where GDP is forecast to shrink.
Macroeconomic headwinds, including an inflation-fuelledcost of living crisis, have their part to play. But businessesof all sizes and across all sectors are also seeing firsthand the impact of Britain’s departure from the EU.

7 BBC, UK expected to be only major economy to shrink in 2023

-5

Local manufacturers have seen order books run dry,
and according to a survey by industry trade body Make
UK8, 50 percent of British firms have found suppliers in
Europe becoming wary about doing business in Britain.
Supply chain bottlenecks are easing globally, but
ports across the UK remain clogged. Haulers thatused to pass through borders unchallenged now
wait 17 hours and more to board ferries as customs
officials wade through mounds of paperwork.
As supply chain operators ramp up theirefforts to reconfigure supply chains, the UK’s
post-Brexit challenges should serve as awarning of how quickly things can unravel
when complex transitions take place on top of
poorly planned and antiquated processes.

8 Make UK, No Weak Links: Building Supply Chain Resilience

Retailers caught out by shift
in consumer spending
Quarter-on-quarter transaction volumes - Index scores by sector
T&L

Manufacturing

Retail

Tech

Q1’22

101

75

94

86

Q2’22

96

97

97

101

Q3’22

92

89

91

98

Q4’22

89

93

97

101

Q1’23

91

99

88

99

significantly
below expectation

below
expectation

withinexpected range

Retailers woke up to a post-holiday hangover in Q1 as
activity across the sector dropped to 12 points below
the expected, the biggest deficit since the early days ofthe pandemic.
\A vicious bullwhip cycle appears partly to blame.
Leisure-wear retailers that planned for a new world ofworking from home admit they were caught out by areturn to the office that prompted consumers to switch
to more formal attire. Consumers are also spending
less overall as inflation hits their wallets.
\Waning demand is also impacting demand for freightcapacity. Activity levels across the transport andlogistics sector remained in the red zone in Q1. The
silver lining is that transportation costs are also coming
down. Analysts Drewry9 reported the largest year-onyear reduction in shipping costs for at least 7 years.

above
expectation

significantly
above expectation

Technology is one of the few sectors thatappears to remain unaffected by the general
economic slowdown. Our latest data shows
activity across the sector remained within the
expected range in Q1 as businesses continued
to press ahead with investments designed tohelp digitize core systems and processes.
The uptick in activity across the manufacturingsector caught us a little by surprise. One possible
explanation for this is that, on a global level at least,
manufacturers are benefiting from the easing ofbottlenecks that are allowing them to clear enormous
backlogs. Is this sustainable? It’s too early to tell,but our guess is that we’ll see activity across thesector slide back into contraction later this year.

9 Drewry World Container Index - 30 Mar

p.17

The Tradeshift Index of Global Trade Health | Q1 2023

Perspectives
on the roadahead

FINAL THOUGHTS:

Supplier diversification
efforts demand areevaluation of traditionalsourcing process
Business leaders watching this year’s Oscars
ceremony may have afforded themselves a wry
smile when the film ‘Everything, Everywhere All
at Once’ carried off the award for Best Picture. If
ever there was a title for the ages, this was it.
Disruptions may not be headline news in quite
the way they have been over the past two years,
but according to research from Capgemini10,
supply chain risk is still the biggest challenge
keeping business leaders awake at night.
The current inventory glut is symptomatic of a lackof agility within supply chains that has left themvulnerable to sudden demand shifts. There aren’t many
people out there who could have predicted a pandemic
sending the world into lockdown. But the reality is that
we live in a world where even a single viral video on
Tik Tok can send a specific product line into overdrive.
Consumer demand shifts rapidly; the only variable
that matches their speed is their intensity.
Supplier diversification is increasingly seen as central tothe agility businesses need to embed into supply chains
to manage all manner of different demand shocks.
Analysis of quarterly earnings calls in Q4 202211
showed a 122 percent jump in mentions ofreshoring and nearshoring. Our data shows that
Mexico has been one of the key beneficiariesof the shift towards shorter supply chains.

10 Capgemini, Where are organizations investing in 2023?
Supply chains and tech are top of the list

India and Vietnam are also benefiting fromthe ‘China +1’ strategy that is gathering
momentum as geopolitical tension escalates.
Reconfiguration on this scale is complex,
requiring businesses to quickly identify, vet,and onboard large numbers of new suppliers.
Accommodating shifting demand patterns will
also demand digital connectivity that allows
buyers and suppliers to collaborate in real-time.
Procurement teams using 20th-century models andtechnologies will struggle to deliver the ingredientsbusinesses need to remain agile. Diversification
efforts aimed at building agility will quickly unravel
if the systems and processes underpinning such atransition remain slow, cumbersome, and antiquated.
A recent report by EY12 encourages businesses toaccelerate their shift away from linear models andtowards networked supply chains that promotevisibility and agility through end-to-end digitalization.
The best example of these new networks is B2B
marketplaces, which bring global buyers and sellers
into a single connected ecosystem. Making thetransition to this model is not a significant technicalchallenge. It does, however, require a substantialchange of mindset for procurement teams accustomed
to wearing complexity as a badge of honor.
When done correctly, embracing a B2B marketplacemodel can be transformative, providing easy accessto a large selection of pre-vetted suppliers in acontrolled environment where smaller suppliers are
put on a more level playing field with large vendors.
The same model can also help organizations
short-cut the process of identifying and nurturing
relationships with suppliers with strong ESG
credentials - essential as businesses come underincreasing scrutiny from regulators and consumers.

12 EY, Supply chain goes from linear to networked ecosystem

11 IoT Analytics, What CEOs talked about in Q4/2022

p.19

The Tradeshift Index of Global Trade Health | Q1 2023

About
Tradeshift’sIndex ofGlobal Trade
HealthPurpose

Methodology

Many of the world’s largest buyers and their
suppliers use Tradeshift’s trade technology
network to exchange digitized purchasing andinvoicing information. The data these transactions
yield provides us with a unique awarenessof trading activity between businesses.

The Index of Global Trade Health comparesbusiness-to-business transaction volumes (orders
processed from buyers and invoices processedfrom suppliers) submitted via the Tradeshiftplatform against a ‘baseline’ we have created byanalyzing medium-term seasonal trends in thetransaction data that flows across our platform.

Tradeshift’s Index of Global Trade Health analyzes
anonymized world trade data flowing across
our platform to reveal a timely perspective of
how external events are impacting businessto-business commerce around the world.
We acknowledge that there are limits to how
accurately our view of what is happening on our
network can reflect how complex global supply
chains are reacting to a variety of external factors.
What our world trade data does provide is a
useful snapshot that provides clues as to whatmight be happening to the global economy.
The patterns we see in our data become morevaluable as we combine them with other thirdparty data and expert insight, something which
you will see us draw on throughout this report.

A reading that meets the baseline indicates growthin line with expectations against historical trends.
Readings greater than and below the baseline
indicate above-trend and below-trend growth.
Looking at the data in this way helps give asense of how volatile activity is across different
sectors and geographies. For example, a sudden
rise in orders might trigger orders to jump at
a rate that exceeds what we would consider
normal. By contrast, waning demand might
trigger volatility in the opposite direction.
We consistently strive to improve and evolve
the accuracy of our analysis. As a result, it
is possible that from time to time, you may
see small revisions to historical numbers
reported in previous versions of the Index.

p.21

About Tradeshift
Tradeshift is the cloud-based supply chain platform that transforms theway B2B buyers and sellers connect, transact and trade. We’re a leader
in e-invoicing and AP automation, offering full international compliancein 50+ countries, including China. We’re also an innovator in B2B
marketplaces and embedded fintech services that bring value, opportunity,and growth to any business that joins the network. Headquartered in San
Francisco, Tradeshift’s vision is to connect every company in the world,
creating economic opportunity for all. Today, the Tradeshift platform ishome to a rapidly growing community of buyers and sellers operatingin more than 190 countries. Find out more at: www.Tradeshift.com© 2023 Tradeshift Holdings Inc. or a Tradeshift affiliate company. All rights reserved.
The Tradeshift Global Health of Trade Index and this report are copyrighted
works. This document is protected by U.S. and international copyright andintellectual property laws. It may be linked to and referenced with thefollowing attribution “Tradeshift © 2023 Tradeshift Holdings Inc.”
Tradeshift is a registered trademark or trademark of Tradeshift Holdings Inc.
in the United States and/or other jurisdictions. All other marks and names
mentioned in this article may be trademarks of their respective companies.
This report is intended for information purposes only, is based on a segment of industry
data, and may not prove to be an accurate representation of total trade volumes.
Tradeshift makes no warranty or representation as to the accuracy of this information.