Bank of America is active across 12 markets in the Asia Pacific, a region leading the global recovery from the coronavirus pandemic. In this Industry Perspective, the bank’s head of trade and supply chain finance for Asia Pacific, Peter Jameson, explains why supply chains are staying in China, the growing interest in environmental, social and governance (ESG) issues among trade finance clients, and why a back-to-basics approach is helping the industry achieve digitisation goals.

GTR: How do you see post-pandemic supply chain shifts and financing requirements evolving in Asia Pacific?

Jameson: We’ve had many discussions with clients about whether they are re-evaluating their China strategy, and it comes up a lot in industry dialogue. But from what I’m seeing, although companies may be considering a China-plus strategy in terms of additional production capacity and diversification, they are not necessarily exiting China.

We had a client webinar recently where we had an online poll and only a handful said that they had shifted activities out of China, while it was a 50/50 split between those who said they were not planning to do that and those that were thinking about it. But few clients had actually done it, which I thought was interesting.

China performed exceptionally well during the pandemic, other than the supply-side shock very early last year in January and February. It has recovered very well. It showed resilience, and it still provides a highly skilled workforce and a meaningful cost advantage for many organisations.

Despite the few signs of movement away from China, we are seeing that the pandemic has driven some reshoring. The first driver of that is technology, including more automated manufacturing which reduces reliance on labour cost and allows you to bring some of those processes closer to home. The second is resilience: the fewer components and geographical dependencies that your supply chain has, the more resilient that would be. Thirdly, there’s a sustainability element because a longer supply chain increases the risk of environmental impact and makes it more difficult to understand what could be going on downstream.

GTR: What are you seeing today in terms of trade flows and volumes?

Jameson: As we’ve come into this year, we’ve seen Asia trade flows boom.

Even during the pandemic, what we observed was consumers were spending less on services, and more on goods, as many consumer markets were in some form of lockdown. So if anything, during the second half of last year, we saw a huge increase. One interesting metric that showed that was the cost of shipping across the Pacific and the availability of shipping capacity. The cost rose three-fold at one point and shipping capacity was very tight. That’s a reflection of an unanticipated spike in demand and trade volume.

GTR: Ahead of COP26 and as parts of the world emerge from the pandemic, 2021 is shaping up to be a big year for sustainability. Many governments, NGOs and end customers are making louder demands for supply chain visibility due to environmental and human rights concerns. Do you see that affecting financing requirements, and if so, how is the bank addressing that?

Jameson: In the last 12 months, we’ve gone from occasionally hearing about ESG and sustainability from our clients – we were often trying to initiate the discussion – to a point now where in almost every client discussion, every request for proposal, the client is eager to hear how we can help them meet their sustainability objectives. In particular we see significant interest in our sustainable supply chain finance solution, which helps clients and their suppliers to incentivise ESG behaviour.

Clients are also increasingly thinking about the social and governance element of ESG, rather than just the environment. There are a lot of reasons why, given the reputational risk that they could run within their downstream supply chains due to issues such as human rights or bad employment practices. That is definitely a trend, driven by the increased interest from investors, customers and employees in how a company is managing its sustainability risk.

GTR: The pandemic has accelerated trade digitisation efforts; how have you seen this play out?

Jameson: The overarching theme is not new; as an industry we’ve been focusing on digitisation for decades. But the thinking and the action around it has really evolved over the past 12 to 18 months, simply because clients and banks have had no alternative.

Perhaps the most progress we’ve seen is in what I call back-to-basics digitisation – processes that have helped companies adapt to work-from-home environments, reduce cycle times, and eliminate paper. This sounds simple compared with other innovation initiatives such as distributed ledger technology, but in many cases it is these basic changes that have kept businesses operating during the pandemic.

Many of these things – such as digital onboarding, digital transaction initiation, or eSignature – are capabilities that have been available on our CashPro platform since before the pandemic, but we’ve really been able to drive adoption in the last 12 months.

GTR: Singapore recently adopted the UNCITRAL Model Law on Electronic Transferable Records – do you see other countries in Asia following suit? What do developments like this mean for trade?

Jameson: It will have an impact, and I’m sure there will be a domino effect. But I think it is less about this specific regulation and what Singapore has done, and more about making sure that these types of digital innovations and standards have government backing and legal underpinning. It would be good if one common approach emerged, and I think having Singapore get across the line is good, given its position as a large trade hub and others will hope to follow suit. The most important point of this is that there should be the same legal underpinning and protection for all of these digital activities, whether bills of lading, or transaction authorisation or digital signatures.

GTR: Are you seeing stronger adoption of supply chain finance (SCF) in the region?

Jameson: There has been a huge upswing in adoption of SCF. Our SCF programmes have seen a marked increase in utilisation year on year. We’ve launched more new programmes this year than ever before and I think it’s because clients are really seeing the benefits that SCF can bring in a pandemic environment where production capacity, demand, and access to capital were uncertain and fluctuating frequently.

SCF is a very compelling tool for risk management by keeping suppliers healthy and deepening relationships with them. And when provided as part of a broader suite of transactional and working capital solutions, SCF provided by banks is still very attractive. There is a lot of room for it to grow and as more clients saw the benefits of it during the pandemic, I think we’ll probably see more organisations start to adopt it.