Financial Supply Chain

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Trading Out of the Crisis To trade out of the crisis successfully requires the right financial frameworks that allow every buyer and seller to manage their risk and liquidity. The Editor discusses with two experts how we, as treasurers and finance managers, should be putting our companies in a position to do this.

Trading Out of the Crisis

by Helen Sanders, Editor

“Colleagues, these are tough times for the world economy and there is no early end in sight. Debt levels and the volatility of financial markets are rising and low growth levels persist. There is a slowdown in trade and a drop in foreign direct investment flows, volatility in food and fuel prices and high unemployment levels also persist. The economic crisis is further aggravated by perceptions that the political responses of governments have so far been insufficient to convince markets about credible exit strategies.”

With these opening words at the recent World Trade Organisation (WTO) Conference (21 December 2011) Olusegun Olutoyin Aganga, Trade & Investment Minister, Nigeria articulated the challenges that face every corporation, bank and government globally. Pascal Lamy, Director General of the WTO followed by saying,

“We need to look at the real drivers of today’s and tomorrow’s world trade, at today’s and tomorrow’s obstacles to trade, at today’s and tomorrow’s trade patterns, at how to keep transforming trade into development, growth, jobs and poverty alleviation.”

We will not talk ourselves out of crisis, and politicians will not do it for us. Instead, as corporations, we must continue doing what we should do best: create wealth, jobs, economic sustainability and improved societies by producing and selling competitive products and services that meet the demands of individuals and organisations around the world. To do this successfully requires the right financial frameworks that allow every buyer and seller to manage their risk and liquidity. So are we, as treasurers and finance managers, putting the company in a position to trade out of the crisis? In this article, we are delighted to feature trade finance experts Pravin Advani, Global Trade Executive, Asia Pacific, J.P. Morgan Treasury Services, based in Hong Kong, and Martin Knott, Head of Trade, GTS EMEA, Bank of America Merrill Lynch, based in Europe.

Changing behaviours, constant objectives

Pravin Advani, J.P. Morgan Treasury Services summarises that the prospect of improving economic conditions until relatively recently had changed the behaviour of some trading partners,

“Over the past two years, we have witnessed a gradual economic recovery which has led to an increase in demand for open account compared with the aftermath of 2008-9 when traditional trade instruments were more attractive. However, as the situation in Europe continues to cause concern, the past few months have been more challenging, and again, our clients are seeking trade instruments and confirmation of LCs as well as supply chain tools.”

Martin Knott, Bank of America Merrill Lynch explains that while the choice of instruments may fluctuate over time, managing risk appropriately has (or should have!) become an imperative for corporations, not only in terms of direct counterparty risk, but looking at risk across the entire supply chain,

“There is a growing focus on risk mitigation, so companies are seeking to increase the resilience of their supply chain by more actively supporting their suppliers. Natural disasters and market turmoil can have a huge and rapid impact on the supply chain as the past few years have illustrated. In order to mitigate risk and to respond promptly, firms need a risk management framework to help model different scenarios, and provide a detailed execution plan that sits behind that framework. The better a company knows its suppliers, the more prepared it can be to react quickly in light of the challenges of today’s volatile times.”

Furthermore, he explains,

“Despite the economic slowdown, which has inevitably resulted in a deceleration of trade finance volumes, we continue to see increasing demand from our clients, particularly in areas such as supply chain finance. Companies that may have introduced regional programmes in the past are now looking to roll these out globally.”

Pravin Advani, J.P. Morgan concurs,

“Clients are increasingly looking at their risk profile as a whole, including both buyers and sellers, and managing both sides very closely. Consequently, our clients are seeking a range of solutions across traditional trade and open account to match their risk management needs.”

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