UK supply chains affected by fulfilment issues in Q4 2021

UK supply chain activity lost momentum against pre-pandemic forecasts in Q4 as global transaction volumes between buyers and suppliers showed increasing signs of stabilizing, new data from Tradeshift reveals. Meanwhile, signs of a protracted slowdown across Chinese supply chains suggest further disruption could lie ahead.

According to Tradeshift’s Q4 2021 Index of Global Trade Health, the recovery in activity across UK supply chains lost a further 9 points of momentum in Q4. Much of the slowdown originates from a steep fall in invoices processed, suggesting parts shortages and low cash flow are preventing suppliers from delivering on orders. An index score of just 49 puts recovery significantly below the global trend. Order volumes remained above the expected range, however, suggesting recovery could accelerate if current bottlenecks continue to ease.

Tradeshift’s data mirrors the findings of a recent report from the Confederation of British Industry which revealed that while order books are tracking at above normal levels, inventory volumes across suppliers tumbled to record lows in December.

“With some evidence emerging that bottlenecks are now beginning to ease, we could yet see invoicing volumes begin to catch up with orders,” said Christian Lanng, CEO and Co-Founder, Tradeshift. “New Brexit customs controls, which began on January 1, won’t make things any easier, however. And with rising inflation threatening to trigger a cost of living crisis, we may start to see order volumes falter as demand weakens. If this happens then overall activity may not accelerate at the level it needs to in order to mount a strong recovery in 2022.”

Logjams start to ease

The UK picture contrasts with the US, where activity continues to track at a significantly higher level than the rest of the world. Momentum dipped slightly in Q4, falling one point compared to the previous quarter, but an index score of 97 (against a baseline of 100) for the period means the cumulative growth in activity since the pandemic sits just 3 points below the pre-pandemic forecast.

Spiking cases of the Omicron variant tempered the overall momentum across global supply chains, but the impact has been generally far less severe than during previous waves. Total growth in global transaction volumes during Q4 remained level with the previous quarter, finishing the year with an index score of 75.

Global order volumes appeared to stabilize, dropping a modest 0.5 points in Q4 after a series of wild peaks and troughs in activity during previous quarters. A seven-point rise in transaction volumes across the transport and logistics sector also suggests that supply chain bottlenecks are starting to ease. Invoice volumes failed to accelerate as expected in Q4 however, suggesting suppliers are still struggling to fulfil the existing backlog of orders.

“We saw a massive spike in orders in the second quarter of 2021 and that should have triggered a glut of invoices from suppliers at the end of the year,” said Christian Lanng, Co-Founder and CEO of Tradeshift.

“We’re seeing some early signs that the pressure on supply chains is starting to ease, but if invoice volumes continue to follow the current trajectory, then it could be at least a year before we see order backlogs fully subside. ”

China’s lockdowns could extend disruption

Tradeshift’s data suggests global supply chains have generally proven far more resilient to the Omicron variant than previous waves. In China, however, tough Covid prevention measures and softening local demand triggered a 10 point fall in transaction volumes against the forecast range. Q4’s Index score of 86 puts cumulative growth in Chinese supply chain activity at its lowest level since the beginning of the pandemic.

“China’s decisive action early on in the pandemic enabled local supply chains to get back up and running before the end of the world, but the same strict policies now seem to be having the opposite effect,” said Lanng. “A spate of lockdowns in key industrial regions across China could trigger more shortages of crucial manufacturing components and extended order backlogs in international markets.”

In the Eurozone, a 20-point drop in invoice traffic compared to the previous quarter suggests rising prices and parts shortages continue to disrupt order fulfilment. Transaction volume growth across the region slipped by eight points in Q4, ending the quarter with an index score of 76.