While global trade volumes have bounced back from the doldrums of last year, 2021 remained a turbulent period for trade and trade finance. Here we have rounded up our most popular articles over the past 12 months, which on the whole reflect the progress made, and the challenges faced by the industry, during this time.
The analysis tracks the total views of all GTR news pages since January 1, and reveals the most popular topics among the trade community this year: the sudden and dramatic demise of supply chain finance (SCF) heavyweight Greensill; the response by commercial lenders to ongoing commodity finance fraud risks; industry efforts to remove legislative barriers to trade digitalisation and the emergence of new digital products, such as NFTs; Covid-19 induced supply chain bottlenecks and soaring freight rates; and efforts by the export and trade finance sectors to translate ESG aspirations into tangible action.
Throughout 2021, GTR’s news coverage of these – and other – topics racked up hundreds of thousands of views. Here is a rundown of what our readers across the globe were most interested in.
The collapse of SCF provider Greensill has been major topic of interest for GTR’s readers this year, with the ensuing investigation into the lender’s business model throwing up questions about an overreliance on credit insurance, its use of the highly controversial “future receivables” product and its exposure to a single client.
In early March, the company was plunged into crisis after Credit Suisse suspended two investment funds relied upon by the London-based fintech for its liquidity needs.
It soon emerged that decision had been prompted by Greensill’s sudden loss of US$4.6bn in trade credit insurance, with the SCF provider having failed in a last-ditch, out-of-hours court ruling to force Australia’s Bond and Credit Company to renew its cover.
Within weeks, Greensill entities in Australia, the UK, Germany and the US all started insolvency proceedings or filed for bankruptcy protection. Hundreds of employees were laid off, investment funds warned of losses running into the billions of dollars, while legal challenges and government inquiries were kickstarted.
In the time since, regulators and the wider SCF industry have examined Greensill’s controversial “future receivables” product whereby financing was made available based on anticipated invoices that had not yet been approved.
There has been particular scrutiny of the SCF provider’s lending activity to a single client, GFG Alliance, a loose network of companies linked to steel magnate Sanjeev Gupta. However, Greensill’s founder, Lex Greensill, has denied suggestions that the non-bank lender knowingly provided funding where there was no underlying business activity, telling a UK parliament inquiry that the company’s future receivables model did not constitute high-risk or unsecured lending.
Commodity finance woes continue
In 2021, commodity finance fraud remained a popular subject for readers despite a relative lack of high-profile scandals, which the year prior had left commercial banks facing billions of dollars in losses.
One of the most-read stories on the GTR website this year centred on a billion-dollar nickel fraud purportedly carried out by Envy Group, a cluster of Singapore-based companies headed by director Ng Yu Zhi.
Envy Group was accused of tricking investors into funding the purchase of goods and trade receivables on the basis of non-existent forward contracts.
The scandal allegedly revolved around Envy companies buying nickel from an Australia-based supplier, Poseidon, before on-selling the metal to parties including BNP Paribas and Singapore-based trader Raffemet. Envy would then raise financing by selling these receivables onto investors. But according to charges failed by Singapore police in March, those forward contracts did not actually exist.
Investors stung by the fraud were reportedly unlikely to recoup their losses, with Ng having allegedly used the cash to fund a lavish lifestyle.
Another well-read article on the website this year covered an attempt by a trade finance fund owned by Dubai’s Rasmala Investment Bank to sue commodity trading giant Trafigura over a series of allegedly fraudulent coal trades.
Rasmala Trade Finance Fund alleged in a lawsuit that Trafigura staff had overlooked forged documents in order to recover debts.
Nonetheless, the flurry of fraud scandals seen in the commodity finance sector in 2020 has slowed, with major commercial banks having since cut their exposure to the industry. As reported by GTR in January, Rabobank said it planned to streamline its trade and commodity finance offering by terminating operations in London, Shanghai and Sydney.
More broadly, there are reports of smaller traders struggling to obtain trade finance due to a so-called “flight to quality” amid commercial banks, who are minimising risk by concentrating on larger trading companies.
As reported by GTR in July, Covid-19 has been the biggest catalyst for digitalisation that global trade has ever seen.
The surge of innovation that has come about as a result means that there are now digital solutions to almost every conceivable problem within global trade and supply chains.
But industry experts have raised concerns that the net effect of this flight to digital is the emergence of “digital islands” that are unable to interact with one another, undermining the ultimate, long-term goal of creating an end-to-end paperless trade process.
Removing legislative hurdles will be one key piece of the puzzle, and the industry has shown a desire to work together in addressing this issue.
In February, Singapore became the second country globally to adopt the UNICTRAL Model Law on Electronic Transferable Records (MLETR) into its own domestic legislation. In doing so, it afforded electronic documents – such as eBLs and promissory notes – the same legal standing as their paper-based counterparts.
Likewise, the G7 digital and technology ministers pledged in May to promote the adoption of MLETR in international trade transactions. The move was hailed as a “momentous step forward” for trade digitisation, and businesses were called upon to get ready for digital trade immediately – or risk being left behind.
In a sign of the progress made to date, the first MLETR-enabled transaction between Singapore and Abu Dhabi was conducted in November.
Elsewhere, the ICC has also sought to address any uncertainty associated with digital trade transactions by creating a new framework, known as the Uniform Rules for Digital Trade Transactions (URDTT).
Meanwhile, the industry has shown a desire to innovate further. In what was one of GTR’s most read stories this year, trade finance asset distribution fintech Tradeteq completed the world’s first trade finance-based NFT transaction on the Singapore-based XDC blockchain network.
Surging freight costs, supply chains in disarray
Global trade roared back this year following a sharp drop in the initial stages of the Covid-19 pandemic, but a number of supply chain bottlenecks are threatening the pace of recovery.
As detailed in a November report from the World Trade Organization (WTO), supply chain issues in critical sectors and gridlock in the shipping sector are dampening prospects for international commerce.
Its quarterly good trade barometer registered a reading of 99.5, indicating expansion slightly below the baseline trend. The previous reading, published in August, had marked the highest growth pace on record.
“Recent supply shocks, including port gridlock arising from surging import demand in the first half of the year and disrupted production of widely traded goods such as automobiles and semiconductors, have contributed to the barometer’s decline,” the WTO report says.
In a sign of the sizeable strains imposed on supply chains this year, freight rates have surged to historic highs.
For instance, the average price for a 40-foot container reached as much as US$10,374.64 by September 16, an increase of 2.9% on the previous week and 323% higher than the year before, according to the Drewry World Container Index, which tracks the cost of containers.
Such increases have been attributed to the unprecedented resurgence in goods demand, following a sharp slump at the outset of the pandemic. Disruption from lockdowns and a shortage of workers and containers have only exacerbated matters.
A UN report published in November says these costs could ultimately push up global import prices by 11% by 2023.
Prices are now starting to fall as demand eases in key consumer markets. But experts say the effects of the 2021 supply chain crisis are likely to last well into next year.
Euler Hermes says in a new report that China’s zero-covid policy could disrupt operations at key ports for months to come, which in turn could have a sizeable knock on effect for exports from the “world’s factory”.
ESG in trade and export finance
As banks, governments and corporates prepared for the landmark Cop26 climate summit, held in Glasgow in November, there was considerable pressure on these organisations to make concrete sustainability commitments.
A landmark paper from the ICC, published in September, detailed how the export credit agency (ECA) community’s action on sustainability has historically lagged progress made in the private financial sector. At that stage, no new multilateral decisions had been reached among ECAs since a 2016 agreement on coal-fired electricity generation.
But the report suggested that the role of ECAs in supporting sustainable financing is changing rapidly.
In July this year, Export Development Canada became the world’s first ECA to set a net zero emissions target by 2050, which also includes an ambition to reach neutral emissions from its operations by 2030.
In terms of concrete action, OECD members formally approved a ban on official export credit support for unabated coal-fired power projects. Alongside China’s pledge to end overseas coal financing, analysts say the OECD decision spells an “existential threat” for coal powerplant development in emerging markets.
Pressure will now grow on the industry to make similar commitments on oil and gas, with a number of countries including the US, UK, Canada and the EU pledging to end public financing for fossil fuels by the end of 2022.
The export credit community is likewise evaluating ways in which it can better support green transactions through targeted incentives.
In the trade finance industry, there has been a growing focus on ESG concerns and a renewed effort to provide clearer definitions on what constitutes a sustainable transaction – so as to address any accusation of greenwashing.
In November, the ICC published a proposed standardised framework that will provide a score of the sustainability credentials of a given transaction across each sustainability dimension – environmental, human and social, and economic. The business organisation is now undergoing what it’s calling the biggest consultation exercise in its history to ensure that this is workable.