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The volatility of the geopolitical and macroeconomic environment in recent years has caused some problems in the trade, treasury, and payments industries. 

However, industry actors have adapted and are working together to build resilience and make international trade even stronger.

To hear about developments in the factoring and supply chain finance world, Trade Finance Global (TFG) spoke with Çağatay Baydar, Chairman at FCI and Irina Tyan, Principal Banker, TFP at the European Bank for Reconstruction and Development (EBRD).

Challenges and growth in the factoring industry

The factoring industry has demonstrated impressive growth since the turn of the century despite facing significant challenges, particularly in emerging markets. 

Baydar said, “The growth rate in 2023 was 3.3% globally in the volume of the world factoring and in 2022 it was 18%. Over the last 20 years, the average growth rate has been 8% which shows that factoring is becoming a mainstream financial product globally, which is very good indeed.”

The sector, which revolves around the purchase of receivables from businesses to provide them with immediate liquidity, has become an essential component of global trade finance, but it also faces challenges. One of the primary challenges is the bureaucratic and infrastructural limitations inherent in the current system. 

Factoring, being an invoice-based product, requires a significant amount of paperwork and documentation, which can be cumbersome and traditionally relies on a paper-based system that only adds to the administrative burden for businesses.

In developed regions like Europe, factoring’s penetration rate – a measure of the amount of trade volume that uses factoring – is around 15%, reflecting a more mature understanding and use of this financial product. By contrast, in emerging markets, the penetration rate is significantly lower, with countries like Turkey and Georgia showing rates as low as 3%.

This discrepancy highlights the knowledge gap and infrastructural deficiencies in these regions. Businesses in these markets often lack the necessary awareness and understanding of factoring, which limits their ability to leverage this financial tool to its full potential.

However, factoring usage in some emerging markets is growing.

Tyan said, “We see the progress in the countries where we started five to seven years ago, like Georgia. We recently had a workshop in Jordan, where we also see a more adapted market, more ready to look into this type of product.”

Further collaboration and efforts to promote regulatory reforms and technological advancements may be what is needed to drive factoring growth in these underutilised regions.

Regulatory reforms and technological integration

Regulatory reforms are crucial for the sustained growth and development of the factoring industry, and legal clarity is particularly important in emerging markets, where the absence of a well-defined regulatory environment can pose significant barriers to factoring’s growth.

One of the key areas that require attention is the standardisation of data exchange formats. 

Creating common data standards for supply chain transactions can facilitate smoother integration between different platforms and financial institutions, improving efficiency, reducing administrative burdens, and enhancing the overall effectiveness of the factoring process. 

Another important aspect of regulatory reform is cybersecurity. 

Tyan said, “As this product heavily relies on platforms, clear regulation on data security and cybersecurity is crucial to build trust among the participants.”

Ensuring the integrity and security of transactions protects sensitive financial information from potential cyber threats and is vital for the long-term sustainability and credibility of the industry.

Digitalising to draw clients and talent to factor

The factoring industry has been significantly transformed by the integration of digital technologies that have made the process faster, more efficient, and more accessible, especially for small and medium-sized enterprises (SMEs). 

Traditionally, the paperwork involved in factoring, particularly for international transactions, slowed down the process and added to its complexity but digital platforms are allowing for quicker access to funds and improving the overall client experience.

Baydar said, “Today, with digitalisation and the platforms, we are making our business much faster, quicker, and more effective. This really helps SMEs to touch the money very soon, very quickly. This makes our clients happier than before because they can experience a very fast, very effective, seamless transaction.”

This shift not only speeds up transactions but also minimises the risk of errors and fraud associated with manual paperwork and can help attract more young professionals to the industry. 

Baydar said, “Young people prefer to work with new technology and high-level startup businesses rather than traditional models.”

The new generation of workers is drawn to innovation and technologically advanced sectors. By embracing digital advancements, the factoring industry can position itself as a forward-thinking and dynamic field, appealing to young talent looking for exciting career opportunities. This influx of new talent is essential for sustaining the industry’s growth and development in the long term.

Organisations that fail to embrace digitalisation risk being left behind in a rapidly evolving market, meaning that investing in digital solutions is not just an option but a necessity for the future of the factoring industry.

IFC, a member of the World Bank Group, launched a new initiative to aid financial service providers in delivering funds to small businesses in emerging markets, with a particular focus on those owned by women and those in the agriculture and climate sectors.

The MSME Finance Platform (the Platform) will provide a financing package of up to $4 billion from IFC’s own account to banks, non-bank financial institutions, microfinance institutions, and innovative digital lenders that focus on micro, small, and medium enterprises (MSMEs). This support will be available to both new and existing IFC clients.

The Platform will also use various forms of credit enhancement to mobilise private capital, including an innovative Catalytic First Loss Guarantee, aiming to attract an additional $4 billion in financing from eligible financial service providers to expand lending to these businesses.

“Micro, small, and medium enterprises form the backbone of most developing economies, yet they face significant financial barriers that hinder their potential,” explained Makhtar Diop, Managing Director of IFC. 

“Our new financing platform addresses these challenges head-on, empowering financial service providers to extend critical support to these businesses, particularly those that are women-led or environmentally focused.”

MSMEs constitute over 90% of all firms and account, on average, for 60-70% of total employment and 50% of GDP worldwide. However, according to the SME Finance Forum, there is currently a roughly $5.7 trillion financing gap for MSMEs.

In emerging markets, MSMEs and the informal sector are essential to economic growth, job creation, and poverty alleviation. Recent crises have financially weakened financial service providers, limiting their ability to meet increasingly stringent lending requirements. 

As a result, businesses in emerging markets and developing economies are experiencing a credit contraction due to tighter credit conditions, rising interest rates, and a limited appetite for risk. As the largest development finance institution supporting the private sector in emerging markets, IFC is well-positioned to assist financial service providers.

IFC will leverage its risk capital to extend first loss protection to eligible financial service providers, which often have ample local currency liquidity but limited exposure to MSMEs due to the segment’s perceived high risk. 

Through this mobilisation approach, the MSME Platform aims to create a financing solution through capital optimisation structures and potentially redirect substantial amounts of local currency financing to businesses.

The Platform will be supported by the International Development Association’s Private Sector Window (IDA PSW) to help de-risk the credit and foreign currency exposures in projects in low-income countries. 

Up to $100 million will come from the IDA PSW Blended Finance Facility (BFF). Additionally, resources from the Global SME Finance Facility (GSMEF) and the Women Entrepreneurs Opportunity Facility (WEOF) will be allocated to support and incentivise lending to businesses in the agriculture sector and women-owned MSMEs.

The European Union announced on Thursday that it has given final approval to implement the remaining batch of Basel III rules, a set of tougher bank capital rules starting January 2025. These rules build on safeguards introduced after taxpayers had to bail out lenders during the global financial crisis over a decade ago.

The majority of the Basel III rules, created by the Basel Committee of banking regulators from the world’s major economies, have already been implemented. However, the final batch includes a key addition known as an ‘output floor’.

This safeguard aims to prevent large banks, which can use their own computer models to calculate capital buffers, from exploiting the system to the detriment of smaller rivals, who must use more conservative calculation methods set out by regulators.

Vincent Van Peteghem, Minister for Finance for Belgium, which holds the EU presidency, said, “The rules adopted today will ensure that European banks can continue to operate in the face of economic shocks.”

“They will also make the banking sector more sustainable and better able to deal with the green and digital transitions. This is an important step towards deepening the Banking Union.”

The bloc has included other rules, not part of the Basel norms, to harmonise the minimum requirements across the 27-country bloc for authorising branches of banks that are headquartered outside the EU.

The package also includes transitional capital requirements for banks’ holdings of crypto assets and changes to enhance how lenders manage environmental, social, and governance (ESG) risks.

The International Finance Corporation, a member of the World Bank Group, has released a whitepaper, “Banking on Women Who Trade Across Borders”, exploring the gender disparity in international trade.

To learn more about this research and its implications for women-led traders, Trade Finance Global (TFG) spoke with Nathalie Louat, Global Director of Trade and Supply Chain Finance at the IFC.

Lack of research creates a lack of understanding

The IFC has been active in financing businesses led by women for 15 years, financing $4.5 billion of loans to these businesses. The organisation also has a Global Trade Finance Program (GTFP) aimed at reducing the trade finance gap, which has financed $100 billion worth of trade since its inception. 

Louat said, “At some point, we brought our heads together and thought that we should focus on supporting more women-led exporters and importers. That’s where the idea of this program was launched.”

Five years after its launch, the IFC had financed $260 million of transactions for women-led businesses. While that is a large figure, it pales in comparison to the $40 billion of total financing the organisation provided for the same product class over the same time period.

When IFC tried to uncover the reasons why they were unable to reach more women-led businesses, they found there simply was not much research available.

Louat said, “We found a lot of research on why trade finance is important for trade. We found lots of research on why it is important to support SMEs, specifically. But there was no research on women-led businesses.”

With that realisation, the Banking on Women Who Trade Across Borders whitepaper was born.

The Banking on Women Who Trade Across Borders whitepaper

The white paper explores some of the barriers that disproportionately impact women in trade, including cultural barriers and lack of financial literacy and it ultimately discovers that the barriers are on both the demand and supply side.

Financial institutions tend to perceive that women-led businesses bear a greater risk profile, likely because they lack specific knowledge of these businesses, due to their generally shorter history. 

Further, 90% of commercial bank respondents identified the absence of collateral as the primary reason for rejecting trade finance applications. 

Louat said, “The lack of collateral is a problem in general for SMEs who are trying to access financing, but we found that the women businesses lack the assets to provide as collateral.”

On the demand side, companies seeking financing tend to have less financial experience and a smaller network.

Louat added, “Trade finance is complex. It requires a lot of documentation. It’s a little distracting for women to have to focus on these administrative aspects when they’re looking to grow their business.”

However, it is not just these characteristics that hinder access to finance. Trade finance also has structural barriers that prevent women from joining the industry, but there are measures that governments and financial institutions can take to help change the narrative. 

Blended collaboration drives business growth for women in trade

Financial institutions should explore specific solutions to look out for women who face those challenges and put programs in place to help them develop their businesses.

Louat said, “We would like banks to focus on facilitating access to credit for women-led businesses. We want them to consider a variety of payment options and to offer a variety of trade solutions to these women-owned businesses.” 

Multilateral development banks can also support these businesses by enhancing financial literacy and working with banks to simplify complex trade finance instruments.

Promoting blended finance may be another way to catalyse interest and help drive support for women-led businesses.

Blended finance combines funds from donors or development finance institutions with commercial capital, providing an incentive for banks to look for ways to better support women entrepreneurs access global markets. 

Many of these innovative approaches will be strengthened by government support and institutions that can underpin the changes needed, such as credit bureaus and collateral registries.

Louat said, “With more credit bureaus, more collateral registries, financiers will be able to provide financing with less need for formal collateral, which these women often don’t have access to.”

There have been successful case studies for these ideas, providing a roadmap for future implementation across different regions.

Louat said, “In Vietnam, it is clear that once we got the government and the private sector to collaborate, the banks were able to pick up on those commercially attractive opportunities and work on focusing on these segments to increase access to trade finance for women-led enterprises. 

“What we have seen is that the women, in turn, are able to take advantage of these opportunities and really grow their businesses.”

To learn more about the case study in Vietnam and the factors impacting women in trade, read the IFCs full white paper here.

At the EBRD 2024 annual meeting in Yerevan, Armenia, the Trade Facilitation Program (TFP) was in the spotlight as it transitions leadership from Rudolf Putz to Shona Tatchell.

Trade Finance Global (TFG) spoke with both leaders to discuss the past, present, and future of global trade finance.

The evolution of global trade: Reflections from Rudolf Putz

Rudolf Putz, the outgoing head of TFP, has plenty to reflect on throughout his 40-year career. From seeing the shift from financing imports of raw materials and foodstuffs from emerging markets to supporting the export of machinery and equipment, and the transition from state-owned economies in Eastern Europe to the current landscape, trade finance looks very different.

Putz said, “When I started my career in Vienna 40 years ago, I financed trade trade with Eastern Europe, and it was all with the state-owned economies and with state-owned organisations in Eastern Europe.”

This shift brought new trade flows and partnerships, challenging but ultimately enriching the trade finance landscape.

A new era for EBRD’s Trade Facilitation Program

The EBRD’s Trade Facilitation Program, established in 1999, has grown significantly under Putz’s leadership. From a small team with just two assistants, it has expanded into a vital component of EBRD’s mission, dealing with a high volume of small transactions in high-risk countries.

The programme’s success lies in its ability to adapt and evolve, supporting partner banks as they transition to serve the contemporary needs of an evolving industry.

Putz said, “Our partner banks today need our support in different areas of trade finance than they did 25 years ago. The role is never finished, it keeps evolving.”

The latest evolution for the programme will take place under new leadership, as Putz steps out of his leadership role after 25 years at the helm.

Shona Tatchell, the incoming head of the TFP, brings a wealth of experience in trade finance, distribution, origination, sustainability, and trade technology.

Tatchell said, “I cut my teeth on distribution, at the very emergence of unfunded risk participations and the development of that secondary market in trade.”

“I later went into innovation because I could see that the digitalisation of trade was really beginning to emerge and I had the fortune of working with some really cool startups.”

While her own startup, Halotrade, a venture aimed at harnessing emerging technologies for sustainable trade finance, eventually closed, the lessons learned, and the vision behind it remains highly relevant today.

She said, “I’m just so excited about the future and being able to actually continue the legacy that Rudolf has established.”

Harnessing digitalisation and sustainability: Shona Tatchell’s vision

Tatchell’s vision for the Trade Facilitation Program focuses on enhancing, expanding, and securing trade finance through digitalisation and sustainability.

Tatchell said, “It probably won’t surprise you to hear that digitalisation and sustainable trade are very high on my agenda. They are so fundamental to the industry and the TFP is already doing great work in that space. I want to build on those foundations and really help develop a green economy around trade finance.”

Achieving such a lofty vision will require a high degree of cooperation between banks, development institutions, and trade finance associations.

Tatchell said, “We have such a huge challenge ahead of us in the global economy and in trade, in particular. The only way that we’re going to overcome the challenges that we have is through working together.”

By working together, these entities can overcome the challenges facing the global economy and trade, paving the way for a more sustainable and inclusive future.

Tatchell’s forward-thinking approach signals a promising future for EBRD’s TFP, one that will embrace digitalisation and sustainability to drive positive change in global trade finance for years to come.

But what’s next for Rudolf? 

“I don’t yet know – it will be an adventure for myself,” Putz said.

“I will take a few months off, but then I hope that we will soon meet again. I do not yet know where or for whom I will be working, but I hope that I will be able to continue my career in trade finance.”

Regardless of what he lands on, Putz will be able to rest easy knowing that the program he helped start 25 years ago is in capable hands.

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Only 15% of exporting firms are led by women.

This finding, from the IFC’s whitepaper “Banking on Women Who Trade Across Borders”, speaks to the gender disparity that still exists in the international trade space, particularly in emerging markets.

To learn more about the challenges that women entrepreneurs face when trading across borders and some of the initiatives in place to offer support, Trade Finance Global (TFG) spoke with Makiko Toyoda, Global Head of the Global Trade Finance and Global Supply Chain Finance Programs at the International Finance Corporation (IFC), and Tacko Baro Fall, Waemu Head Financial Institutions And International Organizations at Ecobank.

The challenges facing women in trade are daunting

Women in trade face significant challenges that hinder their ability to participate fully and equally in the global market. 

Toyoda said, “In emerging markets, many women face difficult collateral requirements, they often don’t have a credit history, and there is a high cost of trade finance transactions”

These high costs associated with trade finance transactions can be disproportionately burdensome for women-led firms, which might already be operating with thinner margins compared to their male counterparts. 

Furthermore, the complexity of trade finance products themselves poses a substantial obstacle, particularly for those who are not well-versed in navigating the financial landscape, which disproportionately includes women due to historical and systemic educational and professional gaps in finance.

These challenges collectively contribute to a discouraging environment for women entrepreneurs in trade, limiting their growth opportunities and reducing their competitive edge in the global marketplace.

Recognising these challenges, organisations like the IFC and Ecobank are working to put initiatives and programmes in place to help change the status quo.

Baro Fall said, “It is imperative that we support women. We simply cannot ignore them as they constitute a significant number of our population and integral to the entrepreneurial landscape.”

Changing the status quo for gender equality in trade

Several initiatives and programs are actively addressing the challenges faced by women in trade, spearheaded by institutions like the IFC and Ecobank. 

The IFC has launched efforts through its Global Trade Finance Program (GTFP), which has been instrumental in supporting financial institutions in emerging markets to facilitate access to global markets. 

A notable part of this initiative is the collaboration with the Goldman Sachs Foundation to provide price discounts for women importers and exporters, aiming to increase the financial participation of women in trade.

Despite these efforts, however, the volume of transactions involving women remains disappointingly low.

Toyoda said, “Since 2019, we have only booked $260 million in transactions for women-led businesses. While that is not a small number, over the same period we booked a total of $40 billion in trade finance transactions, which means that only 0.65% of the total value went to women. This is not acceptable.”

To help overcome this disparity, the GTFP has been partnering with financial institutions to provide training programs on the importance of gender awareness with the ultimate aim of helping provide incentives for banks to book more women-related transactions. 

Some banks, like Ecobank, have embraced this mindset and launched programs to that end – a positive sign that change is coming.

For example, Ellevate, a gender financing program launched by Ecobank, is designed to provide both financial and non-financial support to female business owners, ensuring a holistic approach to supporting women entrepreneurs. 

Baro Fall said, “We recognise three basic needs: the access to credit, the access to markets, and the capabilities development.”

The programme leverages key partnerships with non-profit organisations, government agencies, and development institutions to enhance its offerings and reduce the need for traditional collateral requirements, making finance more accessible to women entrepreneurs.

Together, these initiatives represent a robust effort to integrate women more fully into the global trade environment by reducing financial barriers and increasing their business capacities through strategic support and training programs. 

With gaining momentum, it is time to begin putting together innovative solutions for the years ahead.

Levelling the gender playing field in the years to come

The future innovations in improving access to finance for women in trade involve a blend of digital solutions and strategic partnerships, one of which is the increased adoption of digital platforms and tools that enhance financial inclusion. 

Baro Fall said, “At Ecobank, we have launched a Trade Hub platform to help our women clients access markets in around 33 countries, where they will be able to sell and buy their goods and services.”

This platform is part of a broader movement towards digitalisation that was accelerated by the COVID-19 pandemic, leading to greater adoption of digital financial services. Such digital solutions are especially beneficial for women, who are more likely to engage in online transactions and can benefit from mobile money payment services that facilitate easier and more accessible trade transactions.

Another approach on the horizon is the use of blended finance, which combines concessional funds from donors or development finance institutions with commercial capital, aiming to motivate stakeholders to commit to gender-inclusive development goals. 

The idea is to use blended finance as a tool to encourage banks and other financial institutions to alter their traditional financing models, which often exclude women due to stringent collateral and credit history requirements.

Furthermore, there’s a push for multilateral development banks (MDBs) to play a more coordinated role in promoting access to trade finance for women. 

Toyoda said, “We don’t have a task force for gender trade, which is pretty embarrassing. In the future, this is something that we can propose to have under MDB’s working groups so that we can think about collective actions.”

Such a task force would potentially advocate for regulatory changes to support women-owned businesses, amplifying the impact of financial and developmental initiatives.

These future directions signify a holistic approach to addressing the systemic barriers that women face in trade, emphasising the role of technology, innovative financing structures, and collaborative efforts among global financial institutions and development agencies.

Surecomp® has announced the completion of successful electronic bills of lading (eBL) transactions, bringing together multiple parties via its collaborative trade finance platform, RIVO. 

Following initial transactions processed in September last year, this second phase focused on streamlining the entire eBL workflow to enhance efficiency and transparency, demonstrating how an error-free process can reduce transaction processing time to just one hour.

Surecomp conducted two separate pilot transactions concurrently, with MSC Mediterranean Shipping Company (MSC), the world’s largest shipping company, acting as the carrier generating the eBL in both cases. 

The first transaction also included MAN Truck and Bus, Commerzbank AG, and Bangkok Bank, while the second involved Voith, another German corporate, Bayerische Landesbank, and Indonesian bank PT Bank BTPN Tbk (Bank BTPN).

Using an integration with the WaveBL platform to efficiently generate the digital Bill of Lading—a document typically presented under a Letter of Credit (LC)—the eBL was then attached to the LC transaction in RIVO. Demonstrating a smooth transition from the physical to the digital realm, the document was centrally accessible and transferable to all parties: the beneficiary, advising bank, issuing bank, and applicant. 

The entire process took only one hour to complete. With live status updates verified simultaneously on the WaveBL platform throughout the process, the clean documents were presented under an electronically issued Letter of Credit (eUCP LC).

This secure and seamless eBL ownership transfer via RIVO will facilitate bank adoption. Having also partnered with other leading eBL solution providers in the market, Surecomp is integrating more providers into RIVO.

By eliminating the need for separate onboarding and training for each one, banks can use RIVO as a centralised hub to access all their eBL providers in the same workflow, seamlessly connecting their eBLs to the LCs.

Ofer Ein Bar, VP Financial Institutions at WaveBL, said, “The WaveBL platform issues thousands of electronic Bills of Lading worldwide every day. Some of the largest global shipping companies already trust us to lead the trade revolution. We are confident in our partnership with Surecomp. The success of this transaction will accelerate banks’ adoption of electronic trade documents, marking a significant step toward global trade digitalization.”

“We were able to prove how centralizing the eBL management on RIVO can significantly enhance the process efficiency and operational stability,” said Enno-Burghard Weitzel, Surecomp’s Chief Solutions Officer. “Aggregating digital documents from various platforms represents a significant departure from the traditional, time-consuming paper-based processes that often take days or even weeks. Fostering eBL adoption by banks using RIVO to centralize the workflow, Surecomp remains committed to pioneering trade finance innovation, and the success of this eBL under LC marks a substantial leap forward in digitizing global trade.”

HSBC has introduced its new e-commerce digital payment platform, Omni Collect, in the UAE in collaboration with Saudi-based FinTech company, Geidea.

Through this partnership, Geidea will integrate a merchant acquiring facility within Omni Collect, enabling all HSBC business and corporate clients to access the card receivables solution, thereby gaining a better understanding of their collections data.

Kyle Boag, Regional Head of Global Payment Solutions, Middle East North Africa and Turkey (MENAT), HSBC, said, “HSBC’s Omni Collect will help businesses capitalise on that growth by offering them a simple way to collect payments faster, analyse customer payments behaviour and spot trends to make informed business decisions. Our strategy is to digitise the bank at scale, so that we can innovate faster for customers, and our partnership with Geidea is important in advancing this transformation agenda.”

Available to corporate customers via HSBCnet, Omni Collect is designed to simplify and streamline the way businesses collect digital payments for goods and services sold across multiple payment channels, including credit and debit cards, and e-wallets such as Apple Pay and Samsung Pay.

HSBC’s Omni Collect is integrated into clients’ e-commerce and accounting solutions directly via application programming interface (APIs), enabling real-time data flow. This allows businesses to monitor transactions online, consolidate their reporting across different payment methods, and have a unified view of all their daily business transactions.

Sailesh Malhotra, Geidea’s General Manager – GCC, said, “Our mission is making payments and commerce technology accessible, affordable and intuitive for everyone and this partnership is another testament to our reliability and ability to scale as we deliver on that commitment. We have been granted by the UAE Central Bank the licence to offer a diverse set of merchant services that empowered us to join hands with global partners such as HSBC.”

HSBC clients in the UAE with international operations will be able to expand their integration with Omni Collect across multiple markets in Asia and Europe, and vice versa. Omni Collect is available in the UK, Australia, India, mainland China, Hong Kong, Indonesia, Malaysia, South Korea, Japan, Singapore, Thailand, and Vietnam.

Finastra, a global provider of financial software applications and marketplaces, announced it has been selected by LGT to implement instant payment services in Austria and Liechtenstein, with plans to expand to other markets. 

LGT will deploy Finastra’s payment hub using a model bank implementation approach to expedite its compliance with the EU instant payments regulatory timeline. By separating payment processing from its core banking platform and utilising Finastra’s future-proof solution, the bank will be positioned to handle the expected increase in instant payment volumes while ensuring 24/7 service availability.

“Payments are becoming increasingly sophisticated, and it is crucial that we continue to evolve to meet our customers’ business needs and regulatory requirements,” said Bernhard Strauch, Head Securities & Payments Services at LGT Financial Services Ltd. “We selected Finastra’s payment hub as it supports multiple payment types within one standalone system, while enabling seamless integrations of new services as and when we need them. With Finastra’s solution and industry expertise, we will gain the necessary agility required to keep pace with regulatory and industry demands.”

Finastra’s payment hub offers banks a future-proof, scalable, and resilient payment processing system. Financial institutions can meet current regulatory requirements, respond faster to future changes, and provide personalised services to their customers. 

Combined with a model bank and best practice implementation, the solution will enable LGT to meet the fast-approaching EU regulatory deadline for instant payments swiftly. Once in place, the bank can easily adopt other schemes, such as SIC5 IP in Switzerland, and pursue ongoing modernisation, innovation, and growth. 

LGT also utilises Finastra Kondor, a bank treasury management system, and Finastra’s Total Messaging platform.

“Many institutions need to urgently assess whether their current payment processing environment can support the expected increase in volumes and the need to operate 24/7,” said Neil Macro, Vice President, Managing Director – EMEA mid-markets, Payments at Finastra. “This has been a huge priority for us at Finastra; ensuring that banks are fit for the future with our sophisticated payment hubs, including with the option to pay as you grow. Underpinned by open architecture, APIs, and our partner ecosystem, our solutions enable banks like LGT to innovate at speed, boost risk management and deliver enhanced services to end-users. For example, the bank can seamlessly implement new functionality to strengthen its instant payments offering, such as Verification of Payee and real-time sanctions screening. We look forward to supporting LGT on further developing its payments services.”

Shipping is the backbone of international trade. 

According to UNCTAD, over 80% of all trade is transported by cargo ships. Over the past few years, however, we have seen increased macroeconomic and geopolitical tensions that have caused supply chain disruptions, directly impacting the shipping industry.

To help demystify some of the greatest challenges facing the shipping and freight forwarding industry today, Trade Finance Global (TFG)’s Deepesh Patel (DP) spoke with Director of HR Maritime, Richard Watts (RW).

DP: Maritime disruption, or what many call ‘the end of the big boat era’ is the flavour of today’s conference at Commodity Trading Week. We’ve seen huge reductions in volumes that the Panama Canal can handle due to extremely low water levels, port congestion in places like Long Beach, a continuation of the Red Sea crisis leading to 10% increased transit times and CO2 emissions, and many other shipping challenges. How do these supply chain woes impact commodity trading?

RW: Shipping is a very big part of commodity trading. But, when you look at the transportation of goods around the world, the amount of time it actually takes to move goods from A to B doesn’t really matter that much, as long as the supply chain is well-planned and well-organised. 

It’s when things don’t go as expected that you have a major issue. 

We saw the disruption within the Suez Canal, where the Evergiven given got stuck for six days in March 2021. That isn’t a particularly long time, but it became a massive problem for shipping because vessels had to start deviating unexpectedly. 

We’ve seen more and more disruptions over the last couple of years. It may be that global supply chains have become dependent on increasingly delicate systems, but as a result of these disruptions, we are starting to see many trading companies build more robust systems and incorporate contingency plans into their supply chains. 

Take some of the current shipping disruptions that we are seeing now in the world – like the Red Sea or the Panama Canal. These are situations that we have now been able to calculate for and, for the most part, we know how to handle them. 

If a vessel can’t go through the Red Sea, then it can still go around the Cape of Good Hope. If it can’t go through the Panama Canal, it can still go around the Magdalene Straits. 

As long as we know about these in advance, we can make the necessary plans and adjust our supply chains accordingly. Where the big problems arise is with unanticipated disruptions.

For example, if we were to suddenly see the Strait of Hormuz closed tomorrow, then the world supply of oil would nearly get cut off overnight, which would cause major issues. 

DP: For vessel operators, buyers and sellers, and those involved with maritime transport, understanding contractual obligations and wording is absolutely key, especially when things go awry. Dali’s recent collision with the Key Bridge in Baltimore is one example of this. How can we ensure that contractual obligations are tight when accidents such as this happen?

RW: The problem is when everything goes right, you don’t really need a contract because everyone is happy. It’s when things go wrong that people start laying blame and pointing fingers, which is when you need to start identifying what the contract actually says. 

Unfortunately, this is when a lot of people start looking at the contract and realise that it’s not anywhere near as accurate as it should be. But there are also a lot of times when people don’t actually understand what is included in the contract. 

I had a client who recently shipped cargo from Asia to the US east coast and their vessels would always go through the Red Sea and the Suez Canal. In January, just after the attack started happening and vessels started deviating, this particular ship owner also decided to deviate. 

The question became: who was responsible for paying for that added voyage? 

In this case, since the contract didn’t say anything about who would be responsible for this, there ended up being a dispute with the ship owner.

It’s important to realise that it really doesn’t really matter who you agree will be responsible for something like this – because it will ultimately get priced into the contract anyway – what matters is that it is clearly determined ahead of time. 

DP: Why is it important to understand for trading companies to understand their shipping positions with respect to Incoterms? Can you give any case studies? I’ve heard the Ex Works is a pretty bad Incoterm to use.

RW: The Incoterms are really the foundation of our business and are one of the most important aspects of what we do on a day-to-day basis since they determine some very important aspects of our contract. They determine where risk is transferred from one party to another and who is going to pay for what costs. 

But its important to realise that there is plenty they do not determine. For example, Incoterms do not govern the transfer of title, they do not determine when payment must be made, and they do not cover a lot of other areas that people tend to assume they do. 

This is why it’s important to be very clear about what is covered under the Incoterms and to avoid using what we call ‘hybrid Incoterms’, where we take one Incoterm and stick it onto another. 

For example, I’ve seen people try to use something called ‘FOB + Freight’, instead of the correct ‘CFR’ (Cost and Freight). I’ve also seen ‘FOB + Freight Delivered at Destination’, which doesn’t actually have any meaning at all. 

And I even saw a contract recently that called for ‘DES’, which is an Incoterm that doesn’t exist under the latest rules. Does that mean ‘DES’ as per the latest set of rules when it existed? Does it mean the replacement to DES now, which would be either DAP or DAT? When there are multiple interpretations, if something goes wrong in the shipment, it will almost certainly end up in a costly dispute.

To be effective, these things need to be clear within the contract.

DP: Sanctions regimes are hard to keep up with, particularly for cross-border commodity traders. Can you give any examples of why it’s important to ensure you’re compliant, and what could happen if you’re not?

RW: Over the last 20 years, sanctions have become something that’s more and more important to pay attention to. 

Today, it can destroy a company to be in breach of sanctions. Take BNP Paribas, they ended up suffering a $10 billion fine because of sanctions and ended up closing down their trade finance business. 

Trading companies have also realised the consequences of this. In terms of the different sanctions themselves, it’s a question of what your exposure is and what you’re involved with. Some companies take it more seriously than others, but they all should take it very seriously. 

A few years ago, I had a client who had loaded cargo of bitumen from Dubai. The problem is that Dubai doesn’t export bitumen; bitumen comes from Iran. The shipping documentation, which was written in Farsi, ended up in a bank where the employees were Arabic-speaking, making it obvious that something was awry. 

At the time the bank dealt with this directly with their client, and it didn’t end up in the hands of the regulators, but today it would. 

DP: Demurrage charges are another complex yet important topic to understand. Why must charterers understand these risks and their positions?

RW: Demurrage is important to understand for the sheer amount of money that can be involved. 

I was dealing recently with the situation of a large oil tanker, where the penalty for delay was around $100,000 per day. In this case, the intended loading couldn’t occur because of an issue with negotiations, and they had to find a different terminal to load from.

Ultimately, the vessel waited 27 days before loading, costing around $2.7 million. 

Even if you feel comfortable that your counterparty is responsible for the delay – perhaps because there’s a contract that says they are – the question is would you be able to enforce it? Can you actually get that money back from your counterparty even if you win a dispute? 

DP: What are your top tips for commodity traders when it comes to avoiding some of the biggest risks when it comes to maritime transport?

RW: One of the main tips I would give is that if it looks too good to be true, it probably is. 

Don’t chase those business opportunities that promise to make you a quick fortune because it’ll probably be more trouble than it’s worth. 

I would also say the devil’s in the details, so make sure that you are careful. We often say that you make your money in trading and you lose it in operations. You don’t need to, but it’s very easy to lose money in the operations side of the business. 

A wonderful PnL that’s lost through operations still ends up a loss.