Global Trade Slump Deepens With Small Companies Hit Hardest

Date: Wednesday, October 19, 2022
Source: Bloomberg

Small businesses may suffer the most as the slowdown in global trade intensifies and hits Europe especially hard with weaker demand and surging energy costs.

That’s one of the takeaways from Tradeshift’s Index of Global Trade Health released Wednesday. The UK and euro area saw sharper retrenchments in transaction volumes than China and the US in the third quarter, according to the index, which tracks orders processed from buyers and invoices processed from suppliers.

Here’s a breakdown by sector:

  • Manufacturing supply chains dropped 11 points below the expected range in the third quarter
  • Retail activity was 9 points under the baseline, the worst reading in 18 months
  • Transport and logistics was in negative territory for a second straight quarter.

The downturn is like whiplash for firms that aren’t as well insulated against wide swings.

“This is particularly hard for smaller suppliers who have simply swapped pressure in one direction for an equally treacherous kind of pressure in the other direction,” Tradeshift CEO Christian Lanng said in a statement. “If suppliers get into financial difficulty and start to fold, we could start to see a repeat of the problems supply chains faced during the pandemic.”

Tradeshift, a San Francisco-based global network for digital trade, started publishing the index in July 2020. The company has unpegged the analysis from the pandemic and is now showing it on a quarter-on-quarter basis rather than cumulatively, given the host of new challenges facing the global economy.

“Covid helped dispel the antiquated notion of the supply chain as a necessary, but unimportant backwater of the business,” according to Lanng. “Subsequent events have merely reinforced that change in perspective.”

‘Faltering’ Demand

The results line up with other downbeat assessments for global trade of late.

Economists Rico Luman and Inga Fechner at ING see 2023 as a year of reversal — with sluggish consumer demand colliding with spare capacity in transport logistics. They’re expecting global goods trade to grow 1.2% next year — close to the WTO’s forecast of 1%.

“With consumer demand faltering, the energy and subsequent inflation crisis persisting, and ongoing labor and material shortages, there are simply not enough silver linings to keep global goods trade robustly flowing,” they wrote in a research note.

S&P Global said its Global Trade Analytics Suite sees global trade growth dropping below zero in 2022 and 2023 before recovering the following year. “It looks like for this year we are already after the peak season in cargo demand,” S&P Global said in its latest global trade monitor.

DHL’s latest ocean freight update wasn’t much cheerier.

“The demand side outlook continues to weaken on war risk, skyrocketing energy costs, political instability and general inflation, all of which are now impacting overall consumer spending and thus trade volumes,” the courier company said.

For investors, though, perhaps the bad news is already baked into the outlook. Shares of Maersk are up about 18% since hitting their 2022 low in late-September, and Hapag-Lloyd has bounced 12% since bottoming on Sept. 23.

Since reaching its 2022 low on Sept. 29, shares of Matson have risen about 19%, a rally that continued even after the Honolulu-based container line said on Monday that “we expect to experience lower year-over-year freight demand and a lower rate environment for our” express services between China and North America.


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