The international trade landscape remains volatile, with slowing output, persistent inflation and geopolitical tensions contributing to an increasingly complex credit risk environment. Shipping and logistics companies, cross-border by nature, are under growing pressure to develop sophisticated risk management tools across multiple markets and deep supply chains.

GTR speaks to Henrik Bertelsen, information services director for Asia Pacific at Coface, about the role technology – particularly the use of real-time data analysis and risk-scoring – can play in identifying areas of risk before they become a crisis.

 

GTR: For companies involved in international trade, what kind of pressures or risks are they facing, and how should they respond?

Bertelsen: There is a huge amount of insecurity in the world. Between the US and China, the Russia-Ukraine war and the disruption in the Red Sea, it’s becoming a more volatile world, and that means you need more insight. Looking more regionally, in Asia Pacific, for example, there could be instability or market volatility after the election in Indonesia, or if there is a leadership change in Vietnam.

It’s important to understand those dynamics by looking beyond the data and studying the operating environment. If you’re trading across borders with international buyers, disruption really affects the supply chain, which can mean increased risk for buyers, for instance, if companies in their supply chains are at risk of default. They need to increase the level of insight they have into exactly what that situation looks like at any point in time.

If you’re facing these kinds of geopolitical risks, you need to be close to your supply chain, your customer base and your buyer. To do that, the availability of data, and quality of that data, is incredibly important.

 

GTR: How are these challenges reflected in the shipping and logistics sector?

Bertelsen: These are international companies working on cross-border trade, which inherently means managing cross-border relationships and all of the difficulties that come with that.

To give an example, one of our customers’ supplier bases included a company located in another geographical region that specialised in land freight transport. There was a change in that supplier’s risk score, brought about by monitoring its payment behaviour in real time. Our customer was then able to proactively prepare itself for potential disruptions, by transitioning to alternative suppliers with stronger financial stability and mitigating risks to their logistics operations. That supplier ultimately went bankrupt a year later.

We believe that the shipping and logistics sector faces significant potential hurdles this year, due to factors such as inflationary pressures, a slowdown in global trade and output, and of course those geopolitical tensions. These hurdles can lead to delays and congestion in operations, as well as heightened security measures and increased costs. But on the positive side, demand in some markets has rebounded significantly, and supply chain optimisation – particularly due to huge developments in AI and machine learning – will drive further efficiencies in this industry.

It is vital that companies in this sector are able to monitor entire supply chains, with precise business intelligence to spot organisations that are performing well, or performing badly, and make smart business decisions.

 

GTR: For most companies, managing credit risk has historically been based on publicly disclosed information, such as financial reports. How does Coface’s approach differ from that, and why?

Bertelsen: In credit risk management, a company’s financial report is important, of course. But when you go beyond listed companies, you have a private environment where many companies aren’t legally obliged to file financials, so it can be difficult to work out their ownership situation, whether there is litigation ahead or any adverse media coverage, and so on.

We already had those insights in our core business of trade credit insurance, but in our view, companies’ credit risk processes would greatly benefit from having access to those insights as well. It’s becoming more and more important for companies to understand exactly who they are trading with. As the world becomes more volatile, they need to have a deep insight into their commercial partners in terms of supply risk and credit risk.

 

GTR: What role does technology play in helping companies collect and manage that data, in order to assess risk?

Bertelsen: When it comes to data, the key thing is having the ability to ingest large volumes of information, and then to build connectivity within that data. It also has to be done at a faster speed, with efficiency and accuracy, so it brings more value to the customer when they’re making that final decision.

Traditionally in credit risk assessment, you might be basing decisions on data that could be a year old, again if we use financial statements as an example. As part of our risk assessment, we gather as much data as possible in real time, so any assessment is made to a large extent on the information we obtain in that moment – not something that happened 11 months earlier.

That means if something goes wrong, it gives a customer a more realistic view into the actual situation of the company, and therefore the probability of default. Technology improves the speed, quality and depth of data, and also the speed at which that data can be delivered. Customers then have the best tools to assess risk and proceed accordingly.

 

GTR: How does this work fit into Coface’s broader strategy?

Bertelsen: Trade credit insurance is a service business that exhibits high barriers to entry. Coface has established itself as a leader with a reliable risk infrastructure, which is underpinned by exclusive data and scores, a global presence, advanced technology, extensive underwriting knowledge, a strong regulatory framework and solid financial stability.

Our strategic initiative for 2024-2027, called ‘Power the Core’, aims to capitalise on these strong foundations to enhance and grow Coface’s operations. The focus will be on investing in data and technology to create new, distinctive data and scoring capabilities through advanced modelling, data science and artificial intelligence. These investments will be targeted towards technology and connectivity to benefit our clients.

Our ultimate goal is to transform our unparalleled credit insurance expertise into valuable business insights for companies. This will enable them to make well-informed decisions and be alerted to any potential default indicators, thus mitigating possible losses or disruptions in the supply chain.