Digitalising Trade to Survive

Covid-19 has exposed gaps in global trade ecosystems, but there is no better time than now for industries and businesses to transform, says Daniel Lit, executive director for trade product management, global transaction services, DBS Bank

Digitalising trade to survive

International trade as we know it is hindered by highly manual processes, with reams of paper documentation exchanged within a complex network of trade players such as shipping companies, customs authorities, insurers and banks, each with disparate legacy systems. This leads to unwieldy processing times, high costs and operational inefficiencies. 

The challenges the trade industry faces have been exacerbated by the global Covid-19 pandemic. Various measures to counter the pandemic in the form of national lockdowns, restrictions in global travel and work-from-home arrangements have greatly disrupted globally supply chains, with the World Trade Organization (WTO) estimating in June that world merchandise trade would fall by 18.5% this year. 

Current paper-based processes are ill-suited in this crisis – one that has now undeniably reshaped the ways global trade ecosystems operate. While technology has played a key role in transforming the global trade and trade finance landscape over the years, the confluence of the global pandemic and volatile market conditions such as the US-China trade war has accelerated digital adoption. Driving this unrelenting pace is an industry grappling with how to continue business as usual and remain competitive in this pressured new normal. 

There is industry consensus that digital solutions are no longer a ‘nice to have’ – they are a necessary tool for business viability. There is also greater cognizance among trade players that the pace of adoption needs to be ramped up, because digitalization will help unlock huge benefits for trade, if done properly. 

The WTO again has estimated that falling trade costs could grow trade yearly by 1.8 to 2 additional percentage points until 2030 – totalling growth from 31 to 34 percentage points over 15 years. To that end, a World Economic Forum report in April highlighted that digitalization and the creation of specialized ecosystems “will be the single most efficient approach to reduce trade cost on a global scale”. 

The convergence of these factors sees international trade moving towards digitalization to overcome the disruption in supply chains, but achieving that will require the transformation of many businesses’ digital blueprints. 

Leveraging its digital expertise and strong global connectivity, DBS is taking the lead in helping its clients embark on their digitalization journey, remaining resilient throughout their transformation and ensuring they thrive long afterwards. DBS considers this a key approach and differentiator. 

Leveraging our digital leadership to help customers 
One should not hop on the digitalization bandwagon blindly. Identifying the outcome we hope to achieve through digitalization is essential. At DBS, we approach each customer with their specific pain-points in mind and work with them to co-create innovative digital solutions that are able to unlock strategic value and enhance their competitive edge. 

We ask: how does this company place or receive its orders, and how does delivery work? What problems are they encountering, and do they have a clear business objective driving the need for digitalization? How are the problems faced in one country different to another, and what can be done to resolve them? Each case is different, and we mustn’t lose sight of these specific nuances in our drive towards integrated trade ecosystems. 

By examining each customer’s unique requirements and level of digital maturity, relevant digital solutions in the form of application programming interfaces (APIs), third-party trade platforms, industry-wide platforms, or proprietary DBS digital solutions are applied accordingly. 

The API solution 
APIs form the basic building blocks for many services to integrate, allowing users to exchange data seamlessly in a standardized format. DBS is one of the first banks to have developed a full suite of APIs to help our customers digitalize their trade settlement journey. 

“In April, the World Economic Forum said that digitalization and the creation of specialized ecosystems 'will be the single most efficient approach to reduce trade cost on a global scale'. “ 

DBS RAPID – ‘Real-time API with DBS’ – allows corporate customers to integrate banking services with their own trade systems or platforms. Customers can securely submit their bank instructions and leverage data that is made available from an earlier stage of the trade process. Containing this within the same interface reduces manual data re-entry and the need to traverse different platforms or systems, while the ability to receive real-time updates on transaction statuses allows better planning of working capital and eliminates the need to contact customer centres. This invariably helps customers enhance efficiency and transform their bank interactions in a truly digital workflow. One successful use case is our collaboration with Chinese electronics manufacturer Haier. By leveraging our APIs, Haier’s distributors (many of whom are SMEs) are able to tap into same-day digital financing via their supply chain platform, shortening their cash conversion cycle and providing much-needed access to working capital. 

Industry collaboration in infrastructure and adoption 
While APIs can help bridge disparate legacy systems and transmit data seamlessly, they will not entirely digitalize trade on their own. Different parties will be on different points of the digital spectrum in any trade and it is crucial that we see industry collaboration and government-level efforts to create the infrastructure and common standards for greater interoperability across the trade ecosystem to benefit from a network effect. 

A key initiative in this space is Singapore’s Networked Trade Platform (NTP), a one-stop trade and logistics ecosystem bringing together players across the trade value chain, providing the tools and services to serve businesses’ end-to-end trade settlement requirements in a single platform. 

DBS has aided customers such as Audi Singapore and Premium Automobiles in completing a fully digital trade financing settlement, the first on NTP; where trade documents and bank applications are sent and exchanged digitally, cutting down the processing time from a week to less than one working day. DBS has also collaborated with value-added service provider vCargo Cloud to facilitate the first transaction on the industry multi-bank CamelOne Trade Finance portal with customer Super Steel Pte Ltd. 

In addition to standards, governments must also lead on the creation of legal and regulatory frameworks to help clarify specific features of digital solutions, such as the legality of digital documents exchanged, who is liable at each stage, and the applicable laws or jurisdiction for any dispute resolution. This is critical in ensuring commercial and regulatory enforceability and widespread adoption. In this aspect, DBS is working with industry bodies such as Swift and IMDA’s TradeTrust to facilitate the interoperability of electronic trade documents exchanged between different digital ecosystems. 

Blockchain – exploring new ways to stay ahead of the game 
One would not be able to speak about digitalization in trade without making mention of one of the most-heralded developments in recent years – distributed ledger technology (DLT), more commonly referred to as blockchain. In particular, we have seen an increased application of blockchain or DLT in bridging supply chain liquidity gaps. 

DLT’s distributed and immutable properties could provide transparency to supply chains and assurance in the authenticity of products, which may offer greater comfort to banks to provide access to working capital to smaller players, bringing about wider financial inclusion and leveraging the strength of their anchors to offer funding. It may also help provide more credit to customers leveraging non-financial, transactional/supply chain data on the blockchain. 

Through the transparency enabled by blockchain and connectivity that DBS APIs provide, we are able to offer access to seamless payments and financing solutions for the trade flows facilitated on the platform in real time. Our successful collaborations with companies across the region including Agrocorp and Rong-E Lian are cases in point. 

“Digital documentation has helped Audi cut its trade financing processing from a week to less than one working day.” 

In addition to digitizing supply chains, DLT can be applied in digitizing trade processes. As part of DBS’ ongoing efforts to drive greater efficiencies in trade and unlock strategic value for our customers, earlier this year we joined the Contour Network to further strengthen our Letter of Credit (LC) proposition, being the first Singaporean bank to do so and supporting our customers Rio Tinto and Baosteel in the first RMB LC on the platform. 

By leveraging the distributed and immutable properties of DLT, overall trade document turnaround times can be significantly reduced and the end-to-end process simplified, through the enablement of digital and real-time creation, exchange, approval and issuance of LCs. While it may be still some time until blockchain becomes ubiquitous, our successful endeavours provide a positive hint of its potential to change the status quo and, along with other digital solutions, help address the age-old pain points of international trade. 

Looking forward 
Given its complex nature, trade finance can often be regarded as a team sport. Banks and other trade players must work together in order to reap the benefit of global markets that are robust and trade supply chains that remain sustainable in the years to come. 

As businesses continue to navigate the shifting market landscape and the Covid pandemic, it is critical to capitalize on the digital revolution to overcome the constraints of a paper-driven trade world. What sets the winners apart will be the agility to adapt and transform. There’s never a better time to do so. 

This article was first published by Euromoney in Sep 2020. 

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