Mastercard and GTR co-hosted a virtual roundtable in early August, bringing together business leaders from across the global trade ecosystem to discuss post-pandemic shifts in priorities, and how technological advancements, partnerships and innovation can be leveraged to optimise supply chains and future-proof international trade.
- Gordon Downes, CEO, New York Shipping Exchange (NYSHEX) (supporting the transformation of container shipping)
- John Garden, VP Freight, Global Trade, Mastercard
- Shannon Manders, Editorial Director, GTR (moderator)
- Loudon Owen, Chair and CEO, DLT Labs (specialists in blockchain-based solutions at the enterprise level)
- Chris Sass, EVP and CSO, Fidectus (revolutionising post-trade processing in energy trading)
- Claire Thompson, EVP Global Trade, Mastercard
GTR: What major changes or themes have you seen arise for international trade since the outbreak of Covid-19?
Thompson: The immense disruption we have all experienced throughout the past 18-plus months has also been an accelerator for positive change. Mastercard believes in ‘a united force for good’ and never has that been more apparent. All societies, sectors and geographies have been united like never before in an urgent call to action, and ultimately what we have experienced is people helping people through an unprecedented situation. We’ve experienced a mindset change and everything we do – personal and professional – is now more purposeful.
The outcome of this for trade has been around three elements: increased digital collaboration; the need for partnerships; and the focus on data in supply chains. Those are some of the positives we’ve seen amongst all of the disruption.
Downes: At NYSHEX, our focus is on international container shipping, and we have seen four major themes emerge.
The first theme, as Claire has mentioned, is the forced digitalisation brought on by Covid lockdowns. The container shipping industry is typically a person-to-person business, and is very relationship focused. In addition to that, there are a number of physical documents that need to flow; a lot of companies still require physical bills of lading and cheques. The fact that companies involved in the industry went into lockdown forced people to look at digital means of sending documents and processing payments.
The second is the cost of international container shipping, which has increased dramatically. To put this in perspective, the price of shipping from Shanghai to Long Beach in California has gone up approximately tenfold – that’s comparing pre-pandemic prices to the spot prices that we see in the current market.
The third big change is the reliability of shipping, which is at an all-time low. According to the latest data, only about 38% of vessels arrive on time, which is very poor. In addition to that, it’s also virtually impossible for some companies to get their containers booked on the ships; the networks are at complete capacity. It’s having a negative impact for companies with international supply chains. There are many stories of companies in the US – and I’m sure in many other parts of the world as well – where assembly lines are idle because they’re unable to source the necessary components.
The fourth theme is the sudden and significant shift to supply chain resilience. In the past, the shipping and logistics industry has typically focused on ways to squeeze costs out of the supply chain, achieve just-in-time production, cut inventories, reach more robust procurement processes to get the lowest price provider, and so on. All of that focus on cost is now a far distant second, and the number one emphasis is on building supply chains that are resilient, that can weather shocks and future disruptions – which are inevitable, while ensuring that costs are predictable, that goods flow, and that production facilities remain up and running.
Garden: Building on that, what we’re seeing across all modes of transport, both from a disruption perspective and a freight rate perspective, is a greater focus on asset utilisation and being able to get as much utility out of vehicle – or container ship – as possible. This links with the increased push around digitisation. Within this dynamic, freight exchanges like NYSHEX are seeing tremendous growth in demand and relevance. The industry is going through an acceleration of the transformation process, and it’s good for all of us that are associated with that.
Sass: In the energy industry, post-trade processing is still fairly manual and slow. Substantial working capital optimisation for traders is still possible. So at the beginning of the pandemic, we got panic calls from folks in countries like Italy and Spain, where they weren’t able to settle; people were in lockdowns and couldn’t physically do the billing, which meant companies had cashflow issues. We had to respond rapidly to help businesses – many of which are international firms – digitise and automate.
Another issue that transpired is changing demand for energy during the pandemic. What that did was accelerate projects that helped reduce cost, relieve credit risk, and better manage liquidity. It also meant that companies needed to digitise and automate a lot quicker. We did this, while also seeing an opportunity around adopting standards in post-trade processing, which in the energy industry is typically not done consistently across countries, or even companies operating within a single country. Our focus initially was on standardisation across Europe, and we’re now seeing demand for reaching out into North America and Asia to make sure companies have continuity across processing throughout their global footprint.
Owen: For us at DLT, the transition we witnessed at organisations throughout the pandemic globally was discontinuity: shifting from simply perpetuating historical relationships and practices to doing whatever was necessary to adapt to changing circumstances. One dramatic example was the competitive global search that occurred during the early months of the Covid pandemic to secure and finance personal protective equipment, which became an increasingly scarce commodity. Many previous operating rules and practices were suspended as organisations and governments scrambled to secure supplies and build inventories.
DLT Labs was at the forefront of ground-breaking initiatives that dramatically increased supply chain resilience as supply chain professionals went from asking ‘how do we best optimise and manage our costs and enhance our performance?’ to ‘how do we immediately source what we need, secure multiple sources from multiple jurisdictions and build an oversized inventory?’
At the consumer level, there was an inversion of how goods are sourced. In many jurisdictions, instead of consumers physically travelling to a major retailer, the retailer had to deliver orders to them. At the same time, peer-to-peer communications increased as customers began carefully and collectively vetting availability, so every facet of delivery had to change, while the transaction volume increased incredibly rapidly. Increased consumer needs and expectations were imposed on complex, international supply chains that were already heavily stressed and unpredictable.
Added to that, environmental, social and corporate governance (ESG) principles and transparency also became front and centre for organisations, which placed even more pressure, top to bottom, on industry.
The saving grace was an increase in investment in dynamic software solutions and more agile systems. A good example is DLT’s anchor client, Walmart Canada, which was a leader in adopting new technologies and practices to build far more resilient supply chain networks among its business partners.
GTR: How have your priorities evolved in response to challenges across the trade and technology landscape? What changes are you making now to future-proof that aspect of your business, whether building in new capabilities or products, or targeting new markets?
Owen: To be clear, along with all the other participants in this roundtable, while we represent the future of enterprise technology, to ensure adoption we also need to work with, and leverage, existing enterprise systems rather than try and replace them. The future-proofing done by DLT involves providing the technology ‘glue’ joining the past (historical legacy systems), the present (the most powerful data management solutions currently available based on distributed ledger technology), and the future (open systems). Future-proofing is done by ensuring our architecture is both agnostic and open to any future technologies since organisations need to be able to adapt and evolve at lightning speed.
The future for our clients is available today: hyperautomation based on real-time synchronisation between organisations and systems, networks that deliver visibility between business partners, and automated integration of payments and trade finance. The result is not only trade enhancement, but trade optimisation.
DLT’s platform and solutions unlock the power of trust between organisations globally. With accurate, real-time and trusted information, trade networks achieve an unprecedented level of collaboration and optimisation. Entirely new market opportunities spring to life, for example financial institutions can expand into new markets in the SME universe because adjudication and transaction costs plummet. These institutions can now rely on automated networks with accurate and real-time data that were previously unavailable. Just as the entire category of ecommerce displaced much traditional retail, so too trade finance is undergoing a paradigm shift to automated and integrated trade networks that extend from procurement to payment and all related trade financing.
Sass: Fidectus is a future architecture with massive traction already – we’re a cloud solution with microservices and an immutable audit trail. Architecturally, we’re transforming the energy industry and other commodity businesses step by step. We’re focusing on cross-company workflows that create financial benefit to our clients by means of a global standards-based approach. That’s not something that companies were able to do before. In the past, their only option was to buy monolithic software platforms that weren’t able to integrate or change. So in a situation like a pandemic, or when there is a change in the business, companies can manoeuvre quickly, because architecturally they have the flexibility to do so. It’s up to the vendors, like Fidectus, to offer solutions to do that. And we continue to add new features and functionality – that’s why we are relevant now and how we stay relevant in the future.
Downes: Our priorities have evolved in two ways. The first is focusing more on integration and efficiency in the end-to-end process. When we first launched, our entire mantra was to make shipping contracts effective. Historically, in the shipping industry, contracts haven’t worked – they’re just not taken seriously. Our focus has been on improving that, and in doing so we figured out how to build contracts in a way that they’re 98% compliant. But now the focus is evolving to making that process of ensuring an effective contract much more efficient, much easier to integrate into systems. We’ve invested a great deal in integrating with multiple players in the supply chain as well as on the payment flows, which are closely linked to the contract. We’re really excited about all the opportunities that come with expanding to make the process more efficient overall. Naturally, there’s huge technology involved in that.
Our second change in priority is around global expansion. Initially we focused solely on the US, but given strong demand, we will be rolling out to Europe this year – and potentially elsewhere after that.
Garden: From a Mastercard perspective, when we look at freight and how the programme has evolved, initially we were very focused on the opportunity to digitise payments and to drive that transformation process in the industry. But our focus and priorities have shifted. As we worked to understand how the industry is transforming and how companies are enabling that transformation, what was clear to us is that it’s important to look at the kind of end-to-end processing and industry changes that we’re discussing now, and how we can make ourselves relevant to that, and embed payment in those broader processes.
GTR: What is the role that data, technology and automation play in the evolution of your business and the creation of more resilient supply chains?
Thompson: If we’re truly going to be able to integrate digitally and utilise data, which is clearly one of a company’s biggest assets, and make that beneficial
for them to be able to adapt and grow their business, we’re going to need standards and a market infrastructure that really allows one to do this cross border. That’s where I see Mastercard playing a role in terms of data insights, and how we organise secure data across the trade ecosystem, working with our partners and linking that to payments, and ultimately enabling early payments.
If companies can get their data to be readily accessible in a coherent fashion, then we can start analysing that and pulling insights to reflect a company’s payment status and performance – two really important indicators of how a company is operating and trading with its customers and suppliers. This all creates the underpinnings of trust, which then facilitates the virtuous circle of companies trading with each other.
By creating that more digital cross-border way of companies operating with each other leveraging data insights and using digital means, financiers are then given a much more accessible opportunity to provide them with affordable financing. That’s what we’re seeking to do with our Credit Passports. So, there’s a clear inclusion angle as well. It’s not just streamlining and modernising what we’re doing today, it’s going down the tiers and providing services to SMEs to enable them to become digital and really utilise secure and reliable data insights so they can get access to affordable capital.
Owen: There is a base assumption that more data is inherently a good thing, which is often not the case. In fact, the dramatic growth in raw, unfiltered data is often simply a burden for organisations. Organisations need accurate and real-time data that is visible between trade partners, and there’s a massive opportunity around that need.
The hyperautomation DLT delivers is a continuous process from start to finish, where at each point in the trade cycle, including trade financing, the information is clear, visible and can be trusted. What that means is our automated systems eliminate the need for ongoing reconciliation, much of which is manual. For example, account receivable reconciliation between our client, Walmart Canada, and its transportation carriers, has been virtually eliminated by using DLT’s technology. Now transportation and finance professionals can spend their time on the core business, rather than worrying about a largely manual and often conflicting reconciliation process. They can also transact with certainty, including payments and any associated financing.
The result is the linkage between the process of trade and the process of trade financing. With DLT’s technology, there is now a continuous, immutable and synchronised flow of trusted information – not just a snapshot at different points in time – from the first step in trade through to delivery and payment, which provides substantial competitive advantage and unprecedented access to new markets. It opens the door to low-cost payments and financing at any stage in the process. That is the real power of data.
Sass: At Fidectus we believe that primarily technology follows business needs, and secondly it can be an enabler. ‘Big bang’ disruption has rarely worked. It has usually come about in small, evolutionary steps and a sudden tipping point – which was then experienced as disruption because almost nobody saw it coming. We always need to consider the existing industry processes and architectures and find the quickest way to integrate and improve. That’s exactly what we do. The most pressing need in energy and commodity trading is widely accepted standards. Data exchange standards are required to get the best out of technology and not to waste time on normalising data. Our clients want the benefit of real improvements and not just automation or cost efficiency. In short: to focus on business benefits and innovation. We have successfully removed this first hurdle, which was standards. We are now in the sweet spot for orchestrating the post-trade supply chain. In post-trading, we handle all the markets – not just that of a single trading platform. There are many, and there will be many in the future. And that is what our clients want. There’s a transition period that takes place as the migration happens, given that companies don’t have the resources to individually build this from the ground up.
Garden: Historically, there’s been a degree of inherent mistrust built into relationships in trade. If we can move towards a basis for permissioned and secure access to data that builds transparency and trust then, for all these kind of cross-company flows, you can change the dynamic, and that’s key.
Downes: For us and our focus, which is on more effective, resilient supply chains, it boils down to three simple things. The first is that you need data. And that data has to come from multiple different sources, because not everyone has the complete picture. You need to be able to assimilate all that data and then, in a timely manner, show what’s on track and what’s off track, and who’s responsible for the things that are off track. That piece is really important because there are many different players in the supply chain.
The second part is that the person who’s responsible has to have a clear incentive to get what’s off track back on track. That’s where payments and all kinds of other financial incentives kick into gear.
The third part is around using the data and information to make it easy for the person who’s responsible for getting something back on track to actually take action.
Historically, what we’ve observed in the shipping industry is that the focus has been placed elsewhere. But now these three things are really a key priority for us and across the industry.
GTR: How is your collaboration with Mastercard helping your organisation grow and drive value for your customers?
Downes: The value of the collaboration we have with Mastercard is twofold. One is quite simply working closely with a company that has so much experience in not just payments in isolation, but also the mechanics and the infrastructure that goes behind payments, coupled with global knowledge reach. That collaboration and information sharing is really invaluable when we look at strategic opportunities and trying to assess risks, and so on.
The second part is on payments specifically. NYSHEX used to operate in the freight payment flows from 2016 to 2020, but the complexity was so enormous that we made the decision to pull out. Mastercard is now helping us to see opportunities to get back into the payment flows, doing so in a way that is enormously valuable to our members, that leverages the latest and greatest technology so it isn’t an unmanageable lift, and we are generating revenue from payments, which we didn’t think would be possible.
Sass: For us it’s a similar experience. The Mastercard brand brings credibility to the effort and the experience. Where we’re getting value in the short term is in the relationships on the finance side of Mastercard’s business as we progress into the payments space.
Owen: I believe that the extraordinary value of Mastercard is that they are partners in innovation. Mastercard was a cornerstone in the invention of the modern retail industry globally. Now, Mastercard, with its partners such as DLT Labs, are transforming the entire B2B landscape. For example, DLT has integrated with Mastercard’s Provenance blockchain technology which demonstrates its innovative spirit. We’ve also seen it in the innovation that’s happening across the board in new, dynamic and flexible payment rails introduced by Mastercard.
Mastercard has provided extraordinary range of relationships and partnerships, but to DLT, we believe Mastercard’s enormous contribution is relentless innovation and a commitment to add value in every transaction.
GTR: We’ve discussed the importance of ESG. How are you enabling a more inclusive and sustainable trade ecosystem today and into the future?
Sass: There are a few fronts there, there’s us as a company, making sure that we’re cognisant of ESG and meeting our desired goals there. Certainly, our industry is the first one you would think about when it comes to sustainability and green energy. In terms of our customer base and the industry, there’s a couple of things that are important. One is that any solutions we develop can enable scaling to handle the new entrants in the market – of which there are many, particularly in sustainable energy production. This is where the cross-company, standardised workflow is a real boon. It shouldn’t matter if I’m a wind farm or a hydrogen producer, or whatever, I should still be able to do business as usual. That was very important in our platform from the start – to make sure that what we did brings continuity across the platform and democratises access.
Also, one of the things we’ve done from the very beginning is for our platform to enable settlement of carbon.
Downes: This is a big topic in the world of container shipping. The biggest focus, of course, is on the environmental elements, although there are many others. Ocean shipping accounts for 2-3% of all carbon emissions. The International Maritime Organization has set the target of cutting CO2 emissions from international shipping by at least 50% by 2050, compared to 2008 levels, with carbon intensity reduced 40% by 2030. The industry is working toward those goals, and there have been some positive developments.
In terms of NYSHEX’s contribution, one of the benefits that carriers get through making contracts using our platform is that they can see demand further into the future, and can therefore optimise their networks to meet that demand. By doing so, they can avoid situations where you have ships sailing around the world that are not being fully utilised. If a carrier doesn’t know what the demand is, it may happen that they set sail regardless, expecting the cargo to show up, which it sometimes doesn’t. But that ship has burned the same amount of bunker fuel and created the same amount of carbon emissions and sulphur by-product. By creating more efficiency in the contracting process, there’s a direct link to reducing environmental impact.
Thompson: It is has become vital for ESG to be built into a company’s DNA. But how do you do that? That’s the question. You need to set yourself goals around ESG that are actually going to make a difference to the wider society, and you have to hold yourself accountable to them. Because otherwise, it’s just lip service.
Coming back to inclusion, at the start of the pandemic, Mastercard announced that it was doubling down on its goal to include another 500 million people in the digital economy by 2025, by expanding that commitment to one billion. Recognising that women-owned SMEs often face barriers to prosperity, this has a direct focus on providing 25 million female entrepreneurs with solutions that will help them to grow their business.
As many other companies have done, we have also pledged to reach net zero emissions by 2050, which will be achieved by focusing on the decarbonisation of operations and bolstered efforts through our supply chains.
We have to set these meaningful goals, and they have to be aligned. We can’t achieve this alone; it takes collective responsibility.
Owen: DLT’s business started within the ESG universe, where we were tracking cobalt in the Democratic Republic of Congo all the way from the mine to the electric vehicle battery. The purpose was to ensure best ESG practices were being followed throughout the flow of cobalt.
Embracing the principles and practices of ESG is not an option, it’s now a universal requirement. And beyond its profound and positive societal impact, the concepts behind ESG have added enormous value even in information management.
Objective information and transparent, actionable data go beyond meeting ESG requirements and extends to efficiency and competitive advantage. In DLT’s case, the information is not static, it is dynamic and improves based on our self-learning systems and of course the application of artificial intelligence. What we have found with the implementation of DLT’s technology is an incredible amount of inefficiency is eliminated from virtually every workflow where it is used. Real-time visibility is extraordinarily powerful. These efficiencies drive sustainability at all levels.
Moreover, trade networks are now open to new entrants irrespective of size and location, which dramatically levels the playing field. Rather than an individual organisation needing to grow to a massive size and achieve economies of scale to participate in global trade, DLT-enabled trade networks provide the scale and infrastructure that reduces cost and infrastructure barriers to entry faced by smaller and specialised organisations. By leveraging this shared network infrastructure, virtually any organisation can effectively and inexpensively have access both to new trade opportunities and automated trade finance.
GTR: Looking forward, over the next 12 to 24 months, what changes within the wider trade industry are going to help you to optimise your business as it relates to trade?
Sass: For the next year to two years in the energy industry, it’s all about change. ESG, regulation, cost pressure and adoption of the technology are all things that need to be managed. The industry isn’t quite ready to fully go wholesale into blockchain or smart contracts yet for the part that we’re involved in, so we’re still seeing the deployment scaling up. We’ve already seen the large first-movers join the platform, and we’re scheduling in work for other large commodity traders globally to do so as well. As this rolls out globally, that brings value across companies’ entire footprint. Fidectus becomes a global orchestrator of a resilient and sustainable supply chain in energy and commodity post-trading.
Garden: From a freight logistics perspective, the changes that I’m looking forward to are structural changes within the industry that have been highlighted through the global pandemic. Automation and hyperautomation have been shining a light on some bottlenecks within the industry, and that is going to bring some segments under pressure and drive change. Within the trade and freight context, given the way that companies are now coming together through new partnership models, and the way ecosystems develop, we have the technologies available to really advance legacy challenges and it’s going to be interesting to see how the industry evolves and grows as a result.