Globalisation as a concept may be on the wane in terms of popularity, but container ships will continue to cross the oceans laden with goods and raw materials. Bank Leumi (UK) plc’s Head of Commercial Finance, Nicola South, explains why financing its customers’ trade cycles have always been, and always will be, fundamental to the bank’s business.
It can take around 90 days for cargo to travel from China to the consumer. In that time governments can fall, companies can fail, trade agreements can be suspended and wars can break out. But that container full of timber, white goods, dried fruits or T-shirts will in all likelihood continue its progress from factory to warehouse in Shanghai, Shenzhen or Qingdao. From there, when its scheduled container ship arrives, it will be loaded to begin its month-long journey by sea to Europe, offloaded on arrival at one of the UK’s specialist container ports, and onward through the supply chain eventually reaching an appropriate consumer outlet.
Bank Leumi (UK)’s Commercial Finance team is involved in the entire trade cycle for financing imports and exports; from manufacture to sale, helping UK businesses manage their working capital throughout the process and managing the transfer of ownership and risk against payment through letters of credit and bills of lading.
We have done this since the bank was first established more than a century ago. We know that, whatever governments say or do, international trade will continue. Currencies will inevitably fluctuate and barriers to free trade will come and go, but people will continue to consume goods and foodstuffs from all corners of the globe. While shipping may be a constant, the cost of shipping is not. Sixty years ago, before shipping containers revolutionised the way cargo is transported, it took as long to load a ship as it did to sail it across the Atlantic. Costs were significantly higher. Back then, most products and food stuffs were consumed in the domestic market of origin. Today, as much as 50% are exported.
The trend is only going in one direction. Voters may reject globalisation, but they continue to consume the products that globalisation brings them. Import duties might rise on goods, but the cost of transporting them continues to decrease and the rise of super-containers means that capacity is likely to always be available.
To us, at Bank Leumi, financing global trade is, by any measure, simply good business. Our long-term commitment to international trade, and to those of our customers who are engaged in it is of major strategic importance to the bank.
Whilst the basic techniques and instruments involved in the financing international trade have not changed a great deal over time there are always nuances to every transaction which are more easily addressed when there is a close relationship and understanding between bank and customer. And this is where we have the edge. Not only do we understand the specific transactional needs of our customers, but we are also able to meet all our customers’ trade finance and working capital needs, day-to-day banking and FX requirements.
Our service is personal. From inception, our customers have direct contact with a dedicated relationship manager. We get to know our customers, their business and their banking needs. Our approach to customer relationships ensures we provide flexible solutions, quickly and in line with our customers’ expectations.
Our wider team of colleagues, located in London’s West End, handles all aspects of our customers’ financing requirements, at competitive market rates. In strategic terms, our aim is to finance quality, longstanding UK businesses who are importing1 and exporting globally and for whom we can provide a long-term relationship-led service.
In short, trade finance is a vital part of our business that we have supported through all market conditions and will continue to do so.
Nicola South, Head of Commercial Finance
+44 (0)20 3772 1662
Slow boat from China
It has never been easier to ship cargoes around the globe. Bank Leumi (UK) plc’s Head of International Trade Services, John Edwards, looks at the issues that importers and exporters are currently facing.
When Hong Kong registered container ship the CSCL Globe docked at Felixstowe in January 2015 on its maiden voyage from China, it was a sign of things to come.
With a capacity of 19,000 containers, it was the biggest container ship in the world. A few weeks later, the MSC Oscar docked at the same port. It had the capacity to carry around 120 more containers than the CSCL Globe. Both ships are big enough to carry more than a million washing machines.
The largest shipping companies are investing in massive vessels, and ports are investing in docks to take them. Meanwhile, smaller ships continue to sail. Capacity is subject to cyclical and seasonal variations, but is readily available, meaning it has never been easier to transport goods.
The reason why CSCL Globe serves as an allegory is this: it demonstrates both the huge influence of China’s economic might on international trade, and it also shows the technological future of shipping.
China has a huge effect on the international economy and a direct effect on trade. The steel industry is a prime example.
China is the world’s largest steel producer, accounting for half of world output, and its mills import huge quantities of iron ore for use in production. This influences the amount of shipping capacity available in the market as well as the price of steel itself. Should China decide, as well it might, that it wishes to spend a period of time using the steel it produces rather than exporting it, both the price and internal shipping patterns would shift.
China’s demand is potentially so high it can impact the price of any commodity. For example, UK wool exports to China doubled in 2014/15. Now around a third of UK wool production is exported to China and 48% to mainland Europe. If demand weakens in those economies, it will have a significant impact on world prices for wool.
We cannot alter China’s trade preferences, but we can help our customers deal with the challenges that dealing with such a large economic power throws up. For example, getting a container ship loaded or unloaded at a Chinese port during Chinese New Year is simply not possible. The whole nation slows considerably for the celebration. Factories gear up their production prior to New Year, before winding down, then starting up again. Things do not get back to normal until after the backlog at the ports has cleared.
This has relevance to UK importers who either need constant imports from China, or are reliant upon imports for the UK spring and early summer season. We can help by offering seasonal finance deals to allow businesses to import greater quantities prior to the slow down.
Our clients ship to and from countries all over the world, so we are aware of the features and quirks of international trade across the board, and are able to offer bespoke solutions for dealing with them.
On the face of it, shipping looks low tech. Goods are loaded and transported around the world, with the ships becoming ever larger in scale. However, it is in the loading and the unloading that technological advances have been made. Computer operated cranes now simultaneously load and unload ships with absolute space-saving precision. A job that once took days now takes hours.
Similar efficiencies are on the horizon for the paper trail that underpins trade. Shipping is still document-heavy with every consignment evidenced by a paper bill of lading. Blockchain technology is poised to revolutionise that. Soon, we will be transferring ownership with absolute security at the touch of a button.
Although such improvements in efficiency and security are clearly beneficial we are, nevertheless, very much aware that the fundamentals of trade, trade finance and customer relationships have remained much the same for centuries.
The tools that we use may become smarter, and the volumes that can be moved in one shipment may continue to grow, but it does not change the fact that the aim of importers and exporters is to source goods and products and move them through international supply chains to their ultimate point of sale. Our aim is to provide a responsive, bespoke banking service to help them do so.
John Edwards, Head of International Trade Services
+44 (0)20 3772 1700