GTR Asia returned to Singapore on September 6-7, 2022, following two years of virtual gatherings due to Covid-19 restrictions. Bringing together participants from across the trade finance industry, the event saw lively discussions on a wide range of topics, including the impacts of geopolitical and macroeconomic shifts on supply chains, the increased focus on sustainability by regulators and corporates alike, and the perennial hot topic of digitisation. In this post-conference wrap-up, we bring together some of the main takeaways and key insights.

Building resilience in interesting times

Although many conference attendees expressed that GTR Asia’s return as an in-person event was an indication of “things having got back to normal”, a keynote speech by Michael Every, global strategist, global economics and markets at Rabobank, quickly demonstrated just how abnormal a situation trade currently finds itself in.

“Our long-held economic and political philosophies no longer appear fit for purpose,” he said, adding that the times in which we are living are “suddenly becoming interesting”.

Against a challenging macroeconomic backdrop of rising interest rates and surging inflation, trade also has to contend with both cold and hot conflicts, with the Russian invasion of Ukraine and increasing tensions between China and Taiwan. “Russia is weaponising commodities, China and the US can weaponise supply chains, and the US is weaponising the US dollar and the financial system,” said Every, adding that globalisation is “under threat”.

“Geopolitics matter much more than you think, and it is coming for all of us,” he said, adding: “My personal view is that we are going back to something that looks more like the 19th century, where you have mercantilism and more militaristic closed blocs trading together more opportunistically.”

In the face of this volatility, participants in global trade are doubling down on resilience measures, as Idana Salim, director of trade and supply chain finance for Apac at Bank of America, pointed out during a panel discussion on shifting trade flows.

“What we’ve seen is governments having to react very quickly, putting in policies to minimise the impact of these disruptive events on their respective countries,” she said. “We’re seeing governments and countries taking a fresh look in terms of co-operation among themselves, while the private sector has had to rethink both its supply chain strategy and its foreign investment priorities. Meanwhile, banks have had to quickly step up to support their clients.”

However, injecting greater resilience into the webs of supply chains that span the globe is easier said than done.

“Supply chains at the moment face a massive dilemma,” said James Binns, global head of trade and working capital at Barclays. “We’re in a period of unprecedented volatility, and the reality is that diversifying supply chains takes time. There’s a conflict between needing to manage short-term volatility and risk but at the same time acknowledging that it is going to take many years.”

Working capital focus switches to inventory

As working capital pressure continues to build, proactive strategies are required – but what those look like is changing. As the global supply chain model has shifted from just-in-time to just-in-case, corporates are increasingly seeking to build in inventory buffers, but with this comes increased costs.

“In the last couple of years we have seen a lot of instability in terms of macroeconomics and geopolitics and that has impacted corporates’ thinking in terms of their inventory management strategy,” said Momchil Ivanov, head of structured trade, Asia Pacific, at Santander.

However, increased inventory comes with additional costs, and corporates increasingly face a trade-off between making their supply chain robust or making it cost efficient.

“The good news is that it is not necessarily a zero-sum game,” said Ivanov. “With inventory finance, we can meet both objectives.”

Financing the long tail

Another important aspect around supply chain resilience is bolstering the financial health of the smallest suppliers, and this was an important conversational thread that ran through several panel discussions at GTR Asia.

Small and medium-sized enterprises (SMEs) are key players in supply chains but their position on the far end of those complex networks means they often struggle to access trade finance, hindering economic growth and stability.

“The use case of the popular payables finance product was to finance SMEs in the first tier of supply chains, but this is where it is falling short today because SMEs have graduated away from the first tier and are now in the deeper tiers,” said Sunil Mascarenhas, relationship manager, trade and supply chain finance at the Asian Development Bank (ADB).

In a special session, the ADB put forward deep-tier supply chain finance (DTSCF) as a potential solution to unlocking working capital for all manner of SMEs, as well as enabling the flow of data around ESG and sustainability.

“Post pandemic, we all have a responsibility not just to close the trade finance gap and support trade, but now we’re expected to do that in such a way that ensures the entire supply chain is compliant with environmental and social standards,” said Steven Beck, head of trade and supply chain finance at the ADB. “It’s daunting, but there is a link between DTSCF and our ability to address these issues. DTSCF has the power to drive transparency throughout the supply chain, and combined with the data flow that you can get from that, it can have a profound impact on these big questions that we’re grappling with.”

ESG gets serious

As global regulators, including the Monetary Authority of Singapore, introduce or contemplate regulations requiring financiers and corporates to make environmental, social and governance (ESG) disclosures to help manage environmental risks and channel investments towards more sustainable outcomes, time is well and truly up for greenwashing.

“It’s not that we’re doing it because we’re good Samaritans; it’s because it’s a business necessity without which the probability of you reaching a more sustainable future trends towards zero,” said Yvonne Zhang, climate and sustainability leader, SEA risk advisory, at Deloitte. “This has a knock-on effect of who invests in you, who finances you and their assessment of your credit and financial exposure.”

However, when it comes to improving the sustainability performance of trade, numerous barriers need to be overcome, not least the sheer amount of finance required to genuinely transform supply chains to be truly ESG-compliant.

Being able to monitor ESG improvements is also vital, said Robin Findlay, vice-president of global sales and marketing at Surecomp. “In order to measure standards, you need data. There’s a lot of data across supply chains that needs to be brought in.”

Meanwhile, Ashutosh Kumar, co-head of global transaction banking for Asia and Oceania at Mizuho, pointed to the need for regulators to rethink the capital treatment of sustainability-related financing. “The amount of financing needed is very high, which means we need to make even more financing available. The capital treatment of ESG assets has to be different. If regulators can do that, then banks will find more incentive and capacity to do more ESG finance.”

Trade digitisation is underway, but we’re not quite there yet

The topic of trade digitisation remained front and centre at this year’s GTR Asia, with participants both applauding the progress made thus far while also expressing frustration with the speed of change. Several speakers pointed to the need to adopt global standards and reform laws to enable the acceptance of electronic documents, but the overall sentiment was one of pushing ahead to increase the adoption of the digital tools that are currently available.

“Standards are essential and we should be pushing to have standards adopted, but if we wait nothing will happen in between,” said Carl Wegner, CEO of Contour. “Any sort of technology adoption is a journey, and it won’t just turn on the moment the Model Law on Electronic Transferable Records (MLETR) or the Uniform Rules for Digital Trade Transactions (URDTT) are implemented. We have to start the journey now.”