In its most basic form, trade is a complicated transaction — a buyer in one country, a seller in another, middlemen and agents to navigate a maze of shipping lines, customs officials, air freight and ground transportation. Banks on both sides often provide funding to complete the deal.
In normal times, global trade happens despite notoriously messy exchanges of legal paperwork. Add loads of restrictions during a worldwide pandemic and the wheels of international commerce have the potential to slow down.
So we asked Natalie Blyth, HSBC’s global head of trade finance, to talk about how the system will withstand both the crisis in front of us and the changes it’s bound to bring.
HSBC is the top player in trade finance, a big business that rarely makes big headlines. The Asian Development Bank says there’s a trade-financing gap of $1.5 trillion globally, much of it money that’s not reaching small- to medium-sized companies and many of those owned by women.
“Trade is at an inflection point,” Blyth says. “While it has helped to lift over 1 billion people out of poverty over the last 25 years, we need to ensure that the new normal maintains trade as a force for good.”
Blyth talks about how blockchain is helping reduce letters-of-credit transactions from several days to a few hours. The technology has been around for a few years but the health crisis is accelerating its use. Other time-saving gains will come if authorities start to recognize other electronic trade documents such as bills of lading, she says.
“The global supply chains of tomorrow will be radically different from those we see today,” she says.
Here are some other highlights from her responses to our questions:
What’s separated the trade winners from the losers during this crisis so far?
“Covid-19 has significantly accelerated digitization and is serving as a catalyst for the growth of non-physical goods trade and the shortening of supply chains. It has underscored why working capital, cash-conversion cycles and supply-chain resilience have become strategic priorities.”
What’s your advice to companies thinking about decoupling from China?
“Reducing dependence has been happening for some time. Tariffs, new technologies and the impact of changes in labor costs have all led to reconfiguration of supply chains. However, we do not believe complete decoupling from China is either likely, or desirable.”
What long-term changes do you see coming of this crisis?
Some companies will “re-shore or near-shore” their supply chains for a variety of reasons:
- Automation and the move to digital technology “replaces the need for far-flung supply chains”
- Consumer preferences for “local, and so more environmentally sustainable goods”
- Governments demanding “more self-sufficiency in the areas of critical goods, or more directly as businesses operating with public money are charged with more domestic sourcing”
- “National champions will emerge as governments look to self-sufficiency to protect their citizens”
- “The pandemic will highlight the inter-dependencies between people and the planet and the need for a much lighter carbon footprint and a more balanced approach”
—Brendan Murray in London
Russia’s giving up its title as the world’s biggest wheat exporter, but only until next season. The U.S. raised its outlook for shipments from the European Union to 35 million tons for the 2019-20 season, meaning Russia will lose the top spot for the first time in three years.
Today’s Must Reads
- High seas | Maersk, which controls about one-fifth of the global fleet used to transport goods by sea, is bracing for an historic slump in demand as it projects volumes down by as much as 25% this quarter.
- Rolling back controls | Following two months where nations imposed 150 trade-related restrictions on exports of critical medical goods, some countries are slowly beginning to roll them back.
- Agreement blossoming | The U.K. has put financial services access at the center of its objectives for a trade deal with Japan.
- Missing parts | Lockheed Martin’s F-35 program was hampered last year by growing parts shortages from its supply chain that “increased significantly” and could be further complicated by the U.S decision to expel Turkey from the program.
- Special ends | The human cost of producing 99-cent chickens and affordable burgers during a pandemic is pushing U.S. meatpackers to eye major operational changes that will likely make American meat more costly.
- Adverse consequences | Disruptions in health services and the supply of drugs due to the coronavirus pandemic could cause 500,000 additional deaths from HIV-related illnesses in sub-Saharan Africa.
On the Bloomberg Terminal
- Pole position | China is leading the global restart, and could give a steer on the risk of reemergence of the conoravirus as economic activity resumes, according to Bloomberg Economics.
- Keep on truckin’ | North American truckload carriers will face headwinds from the pandemic’s impact on demand, writes Bloomberg Intelligence.
- Use the AHOY function to track global commodities trade flows.
- See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
- Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.
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