World Trade Suffers – Can Automation Help?

Global trade suffers from skills shortages, inflation and supply chain bottlenecks - But how can technology help?

While the world from the U.S. to China basks in record temperatures, harried citizens can at least look forward to the inevitable end of summer and the arrival of the misty, fruitful autumn. Unfortunately, no such relief is in sight for the global economy.

At the beginning of the year, there was reason for cautious optimism as the supply chain bottlenecks of the past eighteen months began to ease. Then Russia decided to invade Ukraine. In April, Tradeshift’s quarterly Index of Global Health recorded the sharpest decline in euro-area transaction volumes since the pandemic began. At the same time, global manufacturing activity was 25 percent lower than expected.

Three months later, there were growing signs that the global economy was slipping into recession. Order volumes on the Tradeshift platform fell for the second quarter in a row, down another six points from the expected range.

This lack of new orders is beginning to impact suppliers. Invoice volume on the Tradeshift platform fell 7 points in the second quarter. This is the largest decline in a year and the first time since the lockdown that there has been a decline of this magnitude in both orders and invoices in the same quarter.

Global warning

What is striking about the second quarter index is the almost uniform pattern of falling transaction volumes in most of the world’s largest economies. Supply chain activity in the euro area and the U.S. fell for the second quarter in a row, by 5 and 4 points, respectively, while activity in the U.K. also fell by another five points from the forecast range.

This global warning is in danger of being overshadowed by an even more important economic issue: inflation. Orders may be slowing, but Tradeshift’s analysis shows that costs have risen sharply since the beginning of the year. The average value of an invoice submitted on Tradeshift’s platform has increased 11 percent since the beginning of 2022, compared to a more modest 3.5 percent increase in 2021.

Inflation has many causes, many of which are obvious to the untrained eye. Across the global economy, supply chain disruptions continue to occur. Covid-19 cases in China and the imposition of lockdown measures continue to cause problems. Our data shows that supply chain activity across the region fell another 7 points below the expected range in the second quarter. Russia’s incursion into Ukraine further increased pressure, particularly on energy and food prices.

Farewell to cheap labor

Some of the current supply chain challenges are temporary. According to a report by Dutch financial services group ING, U.S. inflation may have already peaked. However, it would be wrong to ignore the structural changes in the global economy that could mean inflation remains a recurring problem.

The link between labor shortages and wage inflation is a good example. Companies are nearing the end of the golden period of cheap labor that began in the 1980s as Eastern Europe and China opened up to international markets and baby boomers continued their careers. This influx of labor kept inflation low and removed the incentive to invest in automation, so labor-intensive manual processes remain a feature of many places in the workforce today.

This cycle is coming to an end. The U.S. is one of several Western countries facing the prospect of a shrinking labor pool. During the 1990s, the working-age population in the U.S. grew by about 1.3 million per year. Next year, the working-age population is expected to grow by only 400,000. No wonder, then, that despite the looming recession, there are still more job openings than applicants to fill them.

Not only are there fewer workers, but those entering the workforce are making tougher demands on the kind of work they are willing to do.

Automation: no longer a luxury

Many companies are examining the bottlenecks in their supply chain and finding that adding more staff is no longer an option to solve these problems. According to a recent Gartner study, 78 percent of executives plan to invest in automation to mitigate the impact of future labor shortages.

Automation may no longer be a luxury, but it’s not a panacea either. Germany’s postwar economic miracle was driven by the use of technology, but it was never about replacing people with machines. It was a holistic strategy. It aimed to allow a limited workforce to focus on delivering a higher-value service. Even today, Germany has more industrial robots per capita than any other Western economy. Germany also has the highest proportion of young people in education and a high per capita commitment to lifelong learning.

Long viewed primarily as a means to reduce overhead costs, automation is increasingly becoming a key component of long-term risk management and resilience planning in global supply chains.

Author: Christian Lanng, CEO of Tradeshift

Tradeshift ist im Bereich E-Invoicing und Automatisierung der Kreditorenbuchhaltung sowie im Bereich B2B-Marktplätze und Zugang zu Lieferantenfinanzierung tätig. Seine Cloud-basierte Plattform unterstützt Einkäufer und Lieferanten, den Einkauf und die Rechnungsbearbeitung zu digitalisieren sowie die Arbeitsabläufe in Beschaffung und der Kreditorenbuchhaltung zu automatisieren und schnell zu skalieren. Das Tradeshift-Netzwerk umfasst eine schnell wachsende Gemeinschaft von Einkäufern und Lieferanten, die in mehr als 190 Ländern tätig sind. Weitere Informationen:

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