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Here’s What’s Going on With Trade Recovery Worldwide

Pent-up demand from lockdowns earlier this year paved the way for trade to bounce back in the third quarter, but the recovery was not consistent around the world.

According to the Tradeshift Index of Global Trade Health for Q3, following a 14.8 percent downturn in trade activity in the second quarter, buyer and supplier transactions in the third quarter rose 15.2 percent over the previous period.

The report, which is based on B2B transactions that took place on the Tradeshift platform between July 1 to Sept. 30, found that July was the strongest month in the quarter. Compared to the second quarter, global transactions grew 23.5 percent in July, followed by smaller quarter-over-quarter gains of 8.7 percent and 13.1 percent in August and September, respectively.

Of the regions studied in the data, the Eurozone is faring the best, with a 25.7 percent increase across the quarter. “What’s emerging in our data is a gap between regions that had a plan for the pandemic and acted quickly, versus those that didn’t,” said Mikkel Hippe Brun, co-founder and senior vice president at Tradeshift.

“The Eurozone acted quickly to stem the pandemic and imposed the harshest lockdown restrictions outside of China,” he added. “That approach seems to be paying dividends now in terms of the bounce back in trade activity we’re seeing.”

Following the Eurozone is the United States with a 17.2 percent increase during the three-month period. Both Europe and the U.S. are close to reaching pre-pandemic levels of trade activity. Meanwhile, the United Kingdom was behind its European neighbors with a 6.1 percent growth in transaction volume during Q3.

China saw an earlier recovery than markets in the West, with trade up 31.8 percent in the second quarter. However, it hasn’t been able to maintain the momentum. A significant 24.1 percent bump in July was followed by two months of low-single-digit performance compared to Q2 figures. While July was just 3.7 percent behind monthly averages for Q4 2019, August and September had more than a 20 percent deficit compared to the fourth quarter of last year.

Aside from regional differences in how firms are experiencing the recovery, the rebound is also uneven between suppliers and buyers. Throughout the third quarter, orders volumes rose 20.3 percent, but invoices were only up 14.1 percent. Because payment terms are typically a few months out, the orders placed during the third quarter won’t turn into cash for vendors until later, leading to a liquidity crunch.

Per Hippe Brun, one of the obstacles to suppliers getting paid during the pandemic was the reliance on paper invoices, which make up half of all statements. Digitization could help suppliers received funds faster. Additionally, it can assist companies with supply-chain visibility and sustainability goals.

“Today’s supply chains have evolved into highly tuned machines, but the relationship between buyers and their suppliers has barely changed in 40 years,” noted Hippe Brun. “Heavily paper-based, it’s almost impossible to get a full view of what’s happening across these complex ecosystems.”

When the data is broken down by sector, one bright spot is retail. After being hit hard in Q2, retail saw an average 63 percent transaction increase throughout Q3. While August saw less of a boost over the second quarter, July and September point to a rebound with at least a 70 percent increase over Q2.

Like retail, logistics companies have pivoted to e-commerce channels during brick-and-mortar closures and slowdowns. On average, the transportation sector’s transactions grew 12.2 percent over the second quarter.

Adaptation is the key to survival, as retail braces for a potential return of stricter lockdowns. Removing the reliance on manual processes and embracing digitization can help companies prep for a possible second wave.

“Businesses have overcome some of the initial shock of the first wave,” said Hippe Brun. “Many have found workarounds, which will enable them to function at some level of normalcy through a second wave. But the systemic problems which brought supply chains to their knees during lockdown haven’t gone away.”

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