Whichever way you look at it, the global economy is in for a rough ride in the months to come. Data from Tradeshift’s Q2 Index of Global Trade Health provides more evidence of a looming recession, with order volumes submitted through our platform dropping sharply for a second successive quarter.
What’s striking about this quarter’s index is the near-uniform pattern of declining transaction volumes across most of the world’s largest economies. Supply chain activity in the Eurozone and the US fell for the second quarter in a row, dropping by five and four points respectively. Activity in the UK also slid a further five points against the forecast range.
Orders may be falling, but the cost of doing business has continued to rise, placing renewed pressure on cash flow at every point in the supply chain. The latest official data puts US inflation at 8.5%. Our own analysis shows that the average value of an invoice submitted on the Tradeshift platform has increased by 11% since the start of 2022, compared to a more modest 3.5% rise in 2021.
The current bout of inflation has several causes, a number of them linked to the pandemic. Supply-chain disruptions have persisted across the global economy. Covid-19 cases in China and the imposition of lockdown restrictions continues to cause problems. Russia’s invasion of Ukraine is adding further pressure.
As transitory as some of the current challenges may be, the past two years has also done a pretty effective job of exposing deep-seated, structural issues across the global economy. The cost of inaction will only increase over time.
Elon Musk’s one-man mission to repopulate the planet may garner the wrong type of headline, but the underlying point is valid. A decades-long cycle of cheap and readily available labor is in reverse.
Automation, long viewed simply as a way to reduce overheads, is fast becoming a key component of risk management planning, across ever sector and in every department. Research by the Association of Advanced Automation found American companies started the year by purchasing the most robots ever in a single quarter. Gartner found that 78% of CFOs are planning to accelerate investments in automation as part of their strategy to build resilience against long-term inflation.
While we’re on the subject of resilience, Alan Jope, the Unilever CEO, is one of a growing number of senior executives who believe that we need to accept crisis as the new normal. Anyone thinking that the supply chain snafus of the past 18 months are going to ease off is likely to find themselves on the wrong side of history.
According to McKinsey, a single-prolonged shock to production could wipe out 30 to 50 percent of one year’s earnings before interest, taxes and depreciation. Recurring risk on that scale will continue to blow holes in any short-term belt-tightening efforts.
The pandemic split the business world into two camps; those who had digitized their operations and could remain agile, and those who had not. That fissure will become an ever-wider chasm over the next two years. Connectivity, transparency and agility have become basic operating principles for the resilient supply chains organizations must build. Stand still now, and there’s a fair chance you’ll end up at the bottom of a deep hole.
