Tradeshift recently launched its Global Trade Health Index, which provides data on trading activity and the associated health of global supply chains during COVID-19. Tradeshift CEO Christian Lanng joined The Final Round panel to discuss.
SEANA SMITH: We have a new report out from TradeShift, finding that global trade activity fell nearly 15% in the second quarter. For more on this, I want to bring in TradeShift CEO Christian Laang. Christian, this drop that we've seen in trading activity, what are you seeing over the past month or so just in terms of the recovery? Are there any signs that we did hit that bottom in the second quarter?
CHRISTIAN LAANG: Yes. I think it's important to understand we measure trade between 1.5 million companies globally. It's invoices and purchasing-- so it's essentially a lead indicator to GDP, right? So the orders that are happening now will turn into GDP in Q3 and Q4. So we're a little bit ahead of the curve on some of the other measurements you've seen.
And what I think is troubling is, I mean, it's still down 15%, but if you look at the UK, it's down 23.1%-- it's actually the country that's fared the worst. And a very big correlation is the countries that locked down early and were very direct in the measures they took, they are also the ones that have bounced up the most again on purchasing. And we're seeing that across the landscape on supply chain, whereas countries that have a much more, I would say, uncertain strategy-- we see the same in the US-- you're actually seeing the [INAUDIBLE] volume being held back across the board in B2B, retail, logistics, et cetera, right? And that's definitely impacting the global supply chains.
AKIKO FUJITA: Christian, you talk about the countries that locked down earliest and then opened up the quickest-- I mean, we're talking specifically about China. But in your report, you kind of address the trajectory of the activity we've seen so far. So initial bounceback in factory activity, a huge uptick, but things have plateaued since. So what does that suggest about places like the US or Europe and the economic trajectory on that front?
CHRISTIAN LAANG: I think if you take China specifically, which has plateaued, right-- they had almost 430% bounceback after Q1, but then they plateaued. And one of the reasons I think is there's a limit to how far China can go in the domestic economy alone, right? So if they're not getting international orders into the same volumes that they were before, that's definitely still going to impact the economy. But they have a very large domestic economy that they can live off.
So the moment that China started opening up again, that gave them the initial bounce. But now they're very dependent on international trade coming back to full-scale for them to scale up. If you look at the West, it's clear that the eurozone is ahead of the UK, and again, also, the Nordics is ahead of the eurozone, which followed exactly where the lockdowns were the earliest and the hardest.
I think retail is down across the board-- obviously very hard hit, especially also in the UK. And again, uncertainty is a very, very big driver. The countries that have the clear strategies have also seen the highest bounceback in retail.
RICK NEWMAN: Hey, Christian, the so-called phase one trade deal with China is really teetering. China does not seem to be making the purchases it said it would make. What can you tell about Chinese purchases of US exports, including agricultural products, which is important to US farmers, obviously?
CHRISTIAN LAANG: I think-- I mean, China has, from just a pure transactional level, we measure from 100 "Fortune 500" companies that are their supply chains. And from that, the trade has definitely been much, much lower. The question is really if it's-- you know, I don't think it's so much the trade deal and tariffs. We saw last year that the tariffs and trade deal had very little impact on trade. I think it's essentially much more that global companies are not buying because of demand.
And the other way I think, China has had two issues on the hand, right? They really needed to kickstart the domestic economy. And I think, you know, in that [INAUDIBLE] they're focused on that, and trade deal has essentially just been a little bit more in the background. Question is where we go from here, right? And especially, you know, a lot of the discussions that's happening right now, I think, you know, all of this talk faces about reparations from China around the coronavirus is certainly not landing very well in Beijing either. So I think that [INAUDIBLE] cool down a little bit.
AKIKO FUJITA: Christian, you highlight the drop that you've seen in invoices, particularly on your platform between May and June, which seems to suggest some liquidity crunch that's coming in supply chains. What specifically or where specifically do you see the pain points in the months ahead?
CHRISTIAN LAANG: So one very big concern we have, right-- and especially let's take UK and US-- is we're not seeing the same order volume that we're seeing in the rest of the world. And that means that business will be down in Q3 and Q4 for a lot of mid-sized companies. And we cannot keep pumping stimulus money in to maintain the status, right? I mean the PPP program and the Future Fund in the UK helped initially, but now there's also a lot of some big companies that might not, you know, essentially survive but also be kept artificially alive.
And I think if we don't get real working capital, meaning money from the companies that are going to buy stuff, into these companies, we have a really, really big cash flow issue come this fall. And I think the solution is not more stimulus, I think the solution is to find ways to unlock working [INAUDIBLE]. We've seen in the UK, Bank of England has gone in to say they will underwrite supply chain finance programs to get suppliers paid early. We see the same in Denmark.
And that is, like, you know, 100th cheaper than the direct stimulus, but pretty much the same effect, because we are using company balance sheets to get that moving. And with an underwriting from the government, you can do that. So I think there is a big, big cash crunch coming, and I don't think stimulus is going to be enough. Stimulus has given us time. If the order volume had picked up in Q2, that would probably be enough, and it will be enough in some countries. It's not going to be enough in the US and UK.
SEANA SMITH: That's very interesting. All right, Christian Laang, CEO of TradeShift, thanks so much for joining the program today.