News / Growing demand but slow cash flow poses a 'serious threat' to shippers

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An uptick in global trade is building momentum for supply chain recovery in 2024, according to Tradeshift.

But the discrepancy between trade and cash flow is posing a serious threat to shippers and manufacturers.  

In its Q1 global index of trade health, Tradeshift reports that the number of new orders being placed is “surging upwards”. 

The B2B solutions provider said global trade activity had reached its highest level in five quarters, while China saw its transaction volumes rising at their swiftest pace for over two and a half years. 

“Global trade appears to be inching closer to a recovery, buoyed by robust growth in both China and the US, alongside indications of a rebound in global demand for manufactured goods,” it said.

“And while Q1 marked the ninth consecutive quarter of below-expectation growth, it also signified the third consecutive quarter of improving momentum, after a prolonged period of sluggish activity.” 

However, Tradeshift also noted that pressure on global cash flow threatened to slow the pace of recovery, and it warned that geopolitical tensions had reignited inflation.  

“Liquidity remains a concern across the supplier base, with the rate of cash reaching suppliers being crucial for supply chain resilience. For supply chains, cash is akin to fuel – the steadier it flows, the better the engine will run,” it said.  

But extending or delaying payments to suppliers has been a common strategy of large organisations, in order to safeguard their working capital. Since Q1 20, the average time taken to settle supplier invoices has steadily increased, hitting a peak in Q3 22 of 16% longer than the pre-Covid average, according to Tradeshift.  

In Q4 23 this was looking more positive, however, but was still 6% above that average.  

“The genuine risk here is that the influx of new orders could outpace the availability of working capital to meet demand,” it warned.  

And the UN Trade and Development’s (Unctad) April report notes that global GDP growth has slowed to 2.6% this year, warning that further growth deceleration could be expected, partly due to the “increasing challenges faced by global maritime trade routes”.  

So even where there is an uptick in demand, it may be hard for shippers and manufacturers to meet it. Tradeshift said: “Ramping up capacity to meet fresh demand could be a challenge for businesses that have been forced to run down cash reserves to compensate for recent downturn. 

“Recent trends suggest that the time to settle payments should continue to decrease over the next six months. However, this may not be fast enough to prevent fulfilment issues hindering the overall pace of recovery.” 

“Although there has been some recovery in 2024, it’s unlikely that merchandise trade will be a significant driver of growth this year; prospects for services trade are relatively better.” concluded Unctad.