A tipping point for global supply chain finance?

This year's ICC Global Survey contains some interesting observations on the financial supply chain. For example 66% of respondents underlined the increasing importance of supply chain finance within their banks. One statement in particular caught my eye...

supply chain

This year’s ICC Global Survey contains some interesting observations on the financial supply chain. 66% of respondents underlined the increasing importance of supply chain finance within their banks, suggesting that demand may now be approaching a tipping point and may therefore bode well for innovative initiatives such as the ICC Bank Payment Obligation.

One statement that particularly caught my eye however is the contention that if every country would improve just two key supply chain barriers then global GDP could increase by USD 2.6 trillion and exports by USD 1.6 trillion. The areas for improvement that have been targeted refer to logistical aspects of the physical supply chain such as cross-border administration and transportation as well as communications infrastructure and related services. The gradual relaxation of these restrictive measures will further assist trade development and help to eliminate a previously uneven trade environment.

The ICC Survey highlights Global Value Chains (GVCs) as offering significant opportunities to countries specialising in specific segments of the supply chain. For example, low cost labour, technical skills and machinery. However, the recent slowing down in GVC market activity can have a disproportionate impact on the consequent deceleration in global trade.  Such relationships are put particularly at risk by information asymmetry, leading to an imbalance of power between counterparties.

There is no question that banks that can deliver a comprehensive range of financial supply chain management solutions will have the potential to revolutionise the industry with compelling value propositions in operational efficiency and cost reductions, closing out gaps in information and helping to sustain global relationships. 

Although world trade picked up in the second half of 2013 and growth is expected to accelerate in 2014 and 2015, the industry continues to be challenged by liquidity shortages as well as political issues and macro-economic trends.  At the same time developments in globalisation, regulation, risk and increased digitisation are driving the emergence of new business models and the demand for increased supply chain efficiency.  As corporates appreciate more and more the benefits of automating trade processes so the demand for technology-driven solutions will inevitably grow.

To take full advantage of the growing revenue opportunities banks do need to invest in new technology that will enable them to customise their solutions and differentiate themselves from the competition whilst delivering consistently high levels of service to customers around the globe.

The survey this year reflects the interest and growing traction in the trade finance industry with a record number of participants taking part. In speaking with friends there recently they reiterated this:

“The trade finance arena has never been surveyed this widely or deeply before,” said Vincent O’Brien, Executive Committee member, ICC Banking Commission. “The broad geographical reach of the survey enhances the richness of the data collected, making this a really useful resource for stakeholders in trade finance, as well as regulators and policymakers globally.”

Further reading can be found:

FT 

Global Trade Review 

Trade and Export Finance: interview with Kah Chye

 

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