A look at today’s passage of goods from supplier to buyer in exchange for payment – via the banking infrastructure – is literally riddled with inefficiency and unnecessary costs. So how can technology prompt an evolution in centuries-old practice?

Nigel Woodward Financial Services Director UK Intel

The Trade Winds of Change: FOB, CIF, CF, LC, Bills, FFA, APN, GRN, DA, FRA – acronyms from an emerging Web 2.0 or a global language that has driven worldwide commerce for decades?

The answer is the latter.

A look at today’s passage of goods from supplier to buyer in exchange for payment – via the banking infrastructure – is literally riddled with inefficiency and unnecessary costs. The import/export process itself can involve as many as 70 documents. Buyers can be out of pocket for months at a time, while sellers are left waiting for vital cash flow. Uncertainty abounds through inadequate tracking of trade associated risks.

Without denigrating improvement efforts such as bank lending and Basel II, most have been cosmetic – involving automation of the status quo but not addressing the fact that global commerce has changed. New technologies are enabling substantial shifts in business processes, but the established mechanisms of traditional trade are acting as an obstacle in the evolution of supply chain infrastructure. Just because it has worked this way in the past, there is no reason for continuing this way, especially as global trade volumes grow at almost 10% year-on-year, compounding the scale of both the problem and the opportunity.

With the development of low-cost computing power, Radio Frequency Identification Devices (RFID), satellite tracking, mobile computing devices and the birth of an information-response culture, we can clearly see a new landscape for global commerce.

Automation of today’s manual paper processes can generate “oceans of data” that has to be transformed into pools of valuable information. Innovation in data management and business intelligence provides an opportunity for all within the supply chain to gain increased visibility of transactions and to reduce the requisition to settlement period.

Imagine a future where information enables visibility of goods from the factory to the retail outlet. Whether by land, sea or air, stakeholders can accurately monitor a product’s movement and condition in real-time. Obligations to pay – and certainty of supply – change the underlying financial implications as the exporter shows that its part has been completed. The carrier then takes command and builds confidence that products will be delivered according to specification. With large buyers looking at compliance with growing corporate social responsibility (CSR) and streamlining the physical supply chain it seems inevitable that suppliers and carriers will have to provide much faster information just to stay at the table.

The financial industry has to ensure the visibility of goods in transit, getting to grips with providing funds and reimbursement services in a new world. After SEPA there may no longer be margins to be made out of payments – so where will banks’ revenue innovation come from?

The subprime market crisis has focused attention on the need for a more diversified portfolio of high quality assets to underpin future securitizations. Where better to look than the pipeline of business-to-business receivables generated by global trade. Supply chain funding solely based on credit risk will be augmented by operational risk evaluation, and if visible and managed, will directly input to the price of funds.

Intel’s fasterCASH, launched at Sibos 2006, acknowledges there is a better way. Today, we look at a number of avenues with our financial services community, including Simplex*, Capital Markets Technologies*, MPI-E*, EDGE*, Tradocs*, Burns*, Track Record Global* and others. We believe the winds of change have been set. And, as a result, we will see significant evolution in a centuries-old practice.

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Filed under: Issue 4 - Winter 07