Related News

New template may spur open account trade finance distribution

Swift says CBDC testing for trade payments showing positive results

Olam bags US$625mn shariah-compliant facility

Yap departs MonetaGo, returns to banking

Supply chain finance industry hopeful EU will soften late payment rules

Since its emergence in China at the end of last year, the Covid-19 outbreak has caused unprecedented damage to supply chains across the world. From output disruptions as factories shut down to demand shocks amid lockdowns, the deleterious impact of the virus on trade now exceeds that of the global financial crisis.

As exporters, banks and fintechs alike scramble to keep business going, Natalie Blyth, global head of trade and receivables finance at HSBC, gives GTR her perspective on the crisis, outlining her concerns as well as what she feels most optimistic about as the world looks forward to the new normal post-pandemic.

  

GTR: The WTO predicts global trade could fall by as much as a third due to Covid-19, exceeding the slump seen in the wake of the global financial crisis. What are you seeing at HSBC?

Blyth: We have obviously seen evidence around the globe of the fall in trade. Half of our business is based in Asia, and that is where it all started. We could see dislocated supply/demand shocks, where the supply side shut down but the demand was still there, and there were problems with not being able to move goods because they were stuck at ports.

We were able to reinvent and modify propositions to meet specific needs, for example, quickly making shipping guarantees available in order to release goods when the paperwork was getting stuck.

As some economies such as China have opened up, others have remained in lockdown, meaning demand is reduced and early openers are seeing export weakness. How demand recovers remains the great unknown. It will be influenced by such factors as how gradually lockdowns are relaxed and the extent to which business and consumer behaviour errs on the side of caution.

As trade volumes have come off, in order to support companies’ working capital needs we have gone deeper into their supply chains and varied our products and the area of that working capital cycle that we’re covering.

 

GTR: What does this fall in trade mean for HSBC’s global trade and receivables activity? Is there still business to be done?

Blyth: Even before the pandemic, we were already on a trade transformation journey where we looked at fixing critical processes and challenging absolutely everything. The volumes of trade will be down, but the vast majority of trade that goes on in the world isn’t actually financed, or doesn’t use trade products to mitigate risk.

Trade finance is not just about funding the trade, but providing the risk bridge between two parties that have lost confidence in each other or that never had it because they don’t know each other. In times of uncertainty, historic data suggests that people come back to using trade finance products. Therefore, some of the fall in the volume of trade will be offset by an increased percentage of people needing the products.

 

GTR: We have heard recently from several industry players that the virus is creating dollar liquidity concerns. To what extent is liquidity tightening in trade?

Blyth: We have already seen several phases of this crisis.

The first phase was the dash by corporates for dollars and cash towards the end of Q1. People were drawing down their revolving credit facilities and grabbing as much cash as they possibly could. Others started to think ahead more to shoring up their suppliers, so they started to have conversations with us about using that cash and finding financial solutions to go deeper into the supply chain.

We have been working with big multinationals to figure out a way to shore up the critical components in their supply chains, across sectors. We have seen corporates even considering buying out suppliers that may be too thinly capitalised in order to make sure that they don’t have a single point of failure in their supply chain, or identifying concentration issues and looking to diversify into different regions or countries.

After that, we saw the secondary market in trade drying up, but this was linked very much to investors seeking to shore up their own position around dollar liquidity and access. We are now seeing that easing up.

What we are also seeing now is the demand shock coming through. We have been very keen to watch the West Coast ports of the US to see what the real demand is. Anecdotally, we are seeing that the shipping volumes are down between 6% and 30% depending on the port, and we are also seeing goods that are not being shipped but are being paid for, so there is inventory stockpiling, either in the country of production and origin, or in the destination country.

 

GTR: How will trade change as the world moves into the “new normal” post-Covid?

Blyth: I remain optimistic and I’m really excited about the future. There will be a big shift in supply chains. Some of the trends we have already seen prior to Covid-19 will be accelerated.

We will see even more sophisticated and more diversified supply chains which focus on resilience, and that will probably require greater diversification at a component level and at a country level. You will see some re-shoring and near-shoring. We are going to see a lot more government intervention and the re-emergence of national champions. The trend that we were starting to observe around the move from the B2B to the B2C will be dialled up as well. We will see more horizontal and vertical integration, and more people will be looking at that single component and potential point of failure and potentially looking to own that as part of their supply chain.

I also think ESG will be dialled up. It was a trend, but it was quite hard work getting people to focus on it. Our research is already showing that corporates who were more inclined to focus on ESG are performing better.

We also expect to see an acceleration in digitisation to make supply chains much more sophisticated. With digitisation, we will be able to analyse the data and develop more nimble, more agile supply chains. This, in turn, will generate efficiencies. We had a target to get to a certain percentage of digital penetration in trade this year. In the first two weeks of the pandemic, we blew through that, and that won’t be going back to paper again.

 

GTR: What will exporters need their banks to do to support them?

Blyth: A lot of the decisioning and dilemmas fall away as soon as you put the client at the centre. It’s about understanding what their needs really are and saying, ‘actually, we can finance that bit of your working capital if you haven’t got the invoice for this but you have got the inventory over there’. It’s just that adaptability. I’m very excited about the future, and I really do hope we don’t go back to anywhere near how it was.