17-09-2020 09:00

Are you ready for the next normal for trade?

The seemingly inexorable rise of globalisation and free trade has come under increased scrutiny recently. Public attitudes and prevailing political opinions have shifted and the norms of the last 50+ years challenged.
Connected world

Protectionist policies and tariffs have regularly been in the news as populist agendas as governments have sought to be seen to protect jobs in their own country. At the same time, consumers are increasingly considering environmental credentials when making purchase or investment decisions. Shipping goods halfway around the world just to save a little money is getting harder to justify.

The COVID-19 crisis has amplified these tensions. The scramble for personal protective equipment elevated supply chains to front-page news. The resulting criticism has driven several governments to introduce policies and promise investment to ensure domestic production. And further global tension is likely when a vaccine becomes available.

What does the future hold for global trade and how can you best prepare your business?

Manage risk and maintain liquidity

According to a recent survey by PwC, 60% of CFOs put “the impact of global economic downturn” in their top-three list of concerns. And 47% included “financial impact, including effects on results of operations, future periods, and liquidity and capital resources”. Managing liquidity will put you in the best possible financial situation for coping with whatever challenges come your way.

Digital platforms, such as we.trade, enable companies to reduce risk and free-up cash that would otherwise be tied up in their supply chains. With conditional payment guarantees, buyers can make purchases without having to make upfront payments, and sellers are protected without negatively impacting their own liquidity. In the past, the complexity and cost of setting up these arrangements put off many, especially smaller companies, but we.trade makes the process much easier.

We already have a good level of trust with our current suppliers but we.trade is undoubtedly a very strong tool for adding a layer of trust to any new or volatile trading relationships.

Gustav Lidén, CEO of Flattered

All the companies on we.trade have been assessed and approved by one of the 16 banks behind the platform. We.trade also provides traceability and a regulatory framework for trading, which reduces risk for both buyers and sellers. Payments and deliveries can be made conditional, so sellers know that if they fulfil their obligations they will be paid, and buyers can be confident that they won’t have to pay for shipments that don’t arrive. This can give companies the confidence to enter new markets, take on new customers and tackle bigger deals, especially in times of limited liquidity.

Patrik Zekkar, Global Head of Trade Finance and WCM at Nordea, says: “Visibility of supply chains through the digitalisaton of trade flows will undoubtedly be key moving forward. Our initiative with we.trade was launched a while ago for SMEs in Europe and we have expanded the offering to large corporates as well. We are seeing lots of interest in using the platform as a way to mitigate credit risk, as well as to achieve such visibility. We.trade helps to reduce supply chain risk as you track and trace the goods wherever they go and payment is only released once you can see the lorry has unloaded the goods to the buyer. Smart contracts enable you to take out the Catch 22 that can often be associated with trade.”

We.trade helps to reduce supply chain risk as you track and trace the goods wherever they go and payment is only released once you can see the lorry has unloaded the goods to the buyer. Smart contracts enable you to take out the Catch 22 that can often be associated with trade.

Patrik Zekkar, Global Head of Trade Finance and WCM at Nordea

Identify weaknesses and fix them

The pandemic has forced many companies to reassess how resilient their business models are. But even long before this, businesses were under pressure to increase the resilience of their supply chains. The constant push to save money has driven companies to make supply chains as lean as possible. Perhaps too lean.

Single sourcing and the reliance on international shipping has left companies vulnerable to shocks—not just pandemics, but also international trade disputes, disruption to travel and more.

Vehicle manufacturers are renowned for being at the forefront of innovations in supply chain management, but back in 2010 production was affected worldwide. The eruption of Eyjafjallajökull sent a huge ash cloud into the sky and led to severe restrictions on air travel. One of the raw materials that became impossible to get hold of was a pigment, Xirallic, which was only made in a single plant in Japan. This shortage cascaded through supply chains and ground production to a halt at many vehicle manufacturers. The cost of lost production was huge.

This illustrates the lesson that you’re not just reliant on your suppliers, but their suppliers and their suppliers too. There was a lack of awareness that most of the world’s leading vehicle manufacturers were all relying on the same factory. The answer was to increase visibility throughout the supply chain.

Technologies such as IoT (Internet of Things), AI (Artificial Intelligence) and blockchain have made this possible, and not just in the automotive industry. They have enabled farmers and retailers to track produce from “farm to fork”, helping to improve standards and reducing the cost of dealing with problems. The data gathered is also being used to reduce waste and demonstrate reduced environmental impact to customers and shareholders.

Richard Hayes, Global Head of Working Capital Advisory at Nordea, says: “The ongoing COVID-19 pandemic has served to illustrate the importance of emergent technologies and platforms in facilitating international trade. As a result of the systemic turmoil caused by the pandemic, treasuries can no longer consider digitalisation as optional, it has become the new reality. At Nordea we work closely with our clients throughout the entire financial supply chain helping to bring new solutions and technologies to address their rapidly developing trade needs wherever they may emerge.”

The ongoing COVID-19 pandemic has served to illustrate the importance of emergent technologies and platforms in facilitating international trade. As a result of the systemic turmoil caused by the pandemic, treasuries can no longer consider digitalisation as optional, it has become the new reality.

Richard Hayes, Global Head of Working Capital Advisory at Nordea

Accelerate your transformation

The COVID-19 crisis forced many companies to rethink their operations. Restaurants —including many Michelin-star establishments—that were unable to accept visitors switched to food delivery models. Schools switched to distance learning and exhibition companies switched to virtual events. It’s hard to imagine any point in post-internet history when so many organisations in so many countries have been forced to reassess their operations.

But companies haven’t just been thinking about the here and now. Many have been looking at their long-term strategy and reconsidering their investment priorities—and as restrictions are lifted, more and more are likely to do so. At the same time, studies have found that many people intend to maintain some of the new behaviours they’ve adopted during lockdown, from buying groceries online to having virtual dates. While just about everybody longs for a return to normal, we are all well aware that it won’t be the same normal. If you don’t revisit your strategy in light of all that’s changed, you risk being out of touch with your potential customers and losing business to your competitors.

Digital transformation may seem even more daunting when faced with an uncertain economic outlook and worries about short-term liquidity. But the risks associated with failing to keep up with changing demand are very real. Some technology initiatives, like moving to cloud computing, can have quite short payback periods—measured in months rather than years. But most digital transformation efforts require some upfront investment.

Venture capital is in short supply at the moment, so finding ways to make more of what you’ve got is key. Strong financial management can help free up funds to invest in your business’s future. This includes improving your visibility of available cash across business units, countries and currencies. Cash pooling will help you to reduce your working capital needs and reliance on loans and overdrafts. This is just one way that your bank could help you find money to fund new initiatives and be prepared for whatever the future holds.