The trade landscape is changing rapidly, with numerous initiatives underway to digitalise the industry at scale. As this happens, all stakeholders must ensure they are building the right foundations and moving up the technology value chain so that they can capitalise on the opportunities being created. With the industry making palpable progress towards fully digitised trade, Barclays and GTR brought together industry experts to examine what banks and companies can and should be thinking about next.
Roundtable participants
- James Binns, global head of trade and working capital, Barclays
- Patrick DeVilbiss, director and senior offering manager, trade and supply chain solutions, CGI
- Pamela Mar, managing director, Digital Standards Initiative, International Chamber of Commerce
- Shannon Manders, editorial director, GTR (moderator)
GTR: In your mind, what has been the one key industry development that has advanced the post-pandemic digital trade agenda? Likewise, within your own institutions, what has been a recent digital trade success?
Mar: For the Digital Standards Initiative, the biggest development was the release of our ‘Key trade documents and data elements’ recommendations, which identify and define standard data elements contained within each of an initial batch of seven commonly used trade documents, including the bill of lading, that are critical to supply chains. This maps how to digitise and share data across the multiple parties that comprise the supply chain end-to-end. The digitisation of trade documents is not a new thing, but approaching it from a broad perspective, across supply chains, is a first, I believe. We’re aiming to deliver the second and third batches of these documents within the year so that we’ll have tackled all 40-odd key trade documents by early 2024.
This coincided with a significant industry commitment by nine of the world’s largest ocean carriers and members of the Digital Container Shipping Association to fully adopt electronic bills of lading by 2030, and a follow-on commitment by members of Bimco, covering the wider shipping industry. Their moves have aligned all the vital components: collaboration amongst industry stakeholders, convergence around a particular technology, and the existence of a set of standards.
Some naysayers have said that this has been an easy win, given that the top 10 players in the shipping industry cover the majority of global volume. But you can’t underestimate the significance of this kind of commitment – it’s huge.
Binns: A lot of what Pamela has outlined will be underpinned by the Model Law on Electronic Transferable Records (MLETR) developed by the United Nations. Some governments around the world are now starting to adopt MLETR, which is a significant landmark in terms of moving towards a globally interoperable legal standard for the exchange of electronic documentation.
The progress made on MLETR adoption has certainly helped to accelerate momentum across the digital landscape. And, while we know full digitalisation is going to take time, we’re now heading in one direction, towards a lot more electronic documentation and the ability to exchange that documentation in a legally binding form. The legal infrastructure is, of course, imperative for trade because so many of our documents are contractual and in some cases, like bills of lading, are documents of title, so how we exchange those electronically is incredibly important. Likewise, with letters of credit and other trade instruments, a broad set of documents are critical to establishing payment triggers, so being able to authenticate and legitimise digital versions of those is critical. The work that industry associations and governments are doing to speed this along is very valuable.
What’s also been a key development is banks have started to realise that you can’t just plug exotic solutions into ageing core infrastructures. You’ve got to fix your basics, which is exactly what we have been doing for the past three years. You’ve got to make your core technology connectable so that you become more agile in an application programming interface (API)-driven environment, and you can connect to more external platforms with greater flexibility and agility.
DeVilbiss: In my mind, one big industry change has been the recognition over the past couple of years that we are not going to see the development of a big platform or ‘killer app’ that connects the world of trade uniquely and completely so that we don’t need to worry about things like interoperability and standards.
We’ve seen many platforms, particularly in the blockchain space, secure significant investment over the last few years and then ultimately not deliver on their value propositions for clients. I think that’s shaken everything up a little bit.
From our perspective, we still believe very strongly in the trade ecosystem. The reality is that you are going to have to connect and play with multiple different partners. You need to understand what’s out there and strategically plan for your institution to be able to connect where and when your partners require.
This supports what James was talking about from an API perspective. At CGI, that’s been our biggest focus over the last couple of years. We’ve retooled our back office and we’re now all built around APIs. As a result, we’re starting to see increased connectivity with more third-party platforms.
One of our big wins has been using our APIs to connect to intelligent process automation solutions to drive some of the physical document data extraction and, ultimately, digitisation. It’s a viable set of technology that’s being utilised by banks today to support them as they move towards being more end-to-end digital.
GTR: Conversely, where has industry progress on digital trade been slow, and why?
DeVilbiss: For me, it’s the standards space where, as an industry, we’ve had the most opportunity but haven’t yet gotten to the point where we’re all in agreement. API standards in particular are the area I’m the most fired up about. Until we get alignment around those, there is going to be a struggle for smaller banks and SMEs that don’t have easy access to fintechs and who risk being left behind.
That said, there is now a lot of energy in the standards space, and we are moving in the right direction. I’m extremely optimistic about the next few years.
I believe this is the area where we’re going to see the most set of developments in the short term, which will potentially change the landscape in which we’re operating and allow us to drive to the next generation of connectivity.
Binns: As we know, trade is very complex. A shipment of goods can involve hundreds of pages of documents, which are issued and handled by multiple different parties. Therefore, the interoperability challenge of getting everybody onto the same technical and legal standards is significant. That’s one of the key reasons why trade has always been a little bit behind the curve. You only need to look at some of the various blockchain ventures that have tried and failed to address that complexity.
Another aspect that has hindered progress is that the information in trade documents is presented in free format.
If you look at a bill of lading, for example, yes, there are distinct fields like the shipment date and so on, but there can also be thousands of different data points in terms of the free format description of goods, which makes digitisation very challenging.
I agree that API standardisation is an important step. APIs could be what helps solve the technical interoperability problem given they enable multiple different platforms to communicate and connect very effectively. But that will only be the case if we establish a more standard set of APIs globally. A really good example of where that has worked well has been the rollout of open banking and PSD2 across the UK and Europe.
Mar: Where I think progress has been slow is in harnessing digital trade to enable SMEs to grow and trade internationally, and the trade finance gap continues to grow, affecting SMEs disproportionately. The good news is that we’re getting many different kinds of stakeholders, including big business and policymakers at the national and international level, putting SMEs on the list of priorities – so they’re certainly in the spotlight. But progress on the ground is hard to come by, and I’m sure many SMEs actually have no idea that they’re the focus of global attention and that all of these different important organisations are working for them, because the need is so vast.
GTR: Now that conducive regulatory and policy environments are being created, what should companies and banks be doing to ensure they can take advantage of these developments?
Mar: When I worked in supply chains, before joining the DSI, suppliers – mostly in the emerging markets – would often ask: ‘What can we do? We’re being told to go digital, but we have no money or resources to make that happen. How do we get started?’
Putting that into the bigger picture that I now have through the DSI, I would say, whether they’re big or small, companies don’t need to change their systems or the platforms that they’re using to manage data, but they should allow that data to be interoperable so that if someone plugs a standardised dataset into their platform, they’re able to connect and run with it. That would be the first step – it doesn’t need to disrupt what they’re already doing; it just needs to be a few tweaks at the back end.
What a lot of companies do is wait until they see a grand design of what they should be doing in terms of their technology and supply chain. But there is no grand design. We’re all learning and creating what works for us as we go, using the resources that we have.
I think it’s important for companies to start pilots. If they can’t pilot a whole horizontal part of their supply chain, then start with a section or a customer, but get teams in the habit of understanding how to tackle new solutions, digitise, share data and so on. The adjustment in approach is as much a challenge for employees as it is for the executive management team making the decisions.
Then, another aspect, everyone thinks that they’re in this alone and that they can’t make progress because, for example, their customer hasn’t asked them to, or their buyer isn’t willing.
My advice is to reach out to supply chain partners and do it together.
With all of the key trade documents, a big chunk of those fields are repeated, and we’re all collecting the same information, copying and pasting, and passing it on. If we could upgrade technologically and facilitate information sharing, which is exactly what the digital platforms are trying to do, then everyone begins saving time, gaining certainty, trust and verifiability, and learning how the security works.
Finally, when companies are choosing supply chain partners, they ought to make digital supply chain capability one of the prerequisites, in the same way as they would social and environmental compliance, for example. They should make digitalisation and the ability to deal with protected data one of their key criteria, along with factors such as cost and quality.
Binns: Whether you’re a bank or a corporate, your choice of core technology is so important. For example, CGI’s Trade360 platform, which operates as a software as a service (SaaS)-based model, is widely used by a number of different banks and as such is API-enabled. If more and more banks use the SaaS-based versions of platforms like Trade360 and they achieve critical mass, then that automatically helps to increase interoperability.
DeVilbiss: I love Pamela’s advice of ‘don’t wait for the grand vision’ because it’s so true, and we’re all guilty of it. If you’re trying to achieve perfection or waiting for someone else to achieve perfection, and then copying that, you’re either going to be left behind or you’ll never do anything.
I think that what banks and corporates should be sensitive to is that in order to take advantage of the opportunities brought about by digital trade, there are going to be cost implications. Especially in the API space, as standards come about and we gain critical mass around the adoption of some of those.
Investments will need to be made. It doesn’t mean that companies will need to invest in everything all at once but, as part of their planning, they will need to change what they are doing today, and take on board some of the costs of making those changes. They’ll need to be willing to do this to get to the ‘next level’ of engaging in global trade.
GTR: How can an increase in trade digitalisation impact SMEs’ access to trade finance?
Binns: One of the barriers to access to bank-provided trade finance for smaller companies is the know your customer (KYC) process. For banks, simply the cost of doing the KYC outweighs any potential benefit or revenue that it may see by supporting that company’s transactions. As technology has improved, we’ve seen the development of KYC automation tools that banks may be able to leverage to keep costs down, enabling them to go deeper into supply chains and ultimately service businesses of all sizes more efficiently. This is also where increased collaboration with multilateral development banks and other commercial banks across supply chains could also make a difference.
Mar: I don’t necessarily think we should be looking to the traditional trade finance processes to be solving the problem of SMEs. Their cost structure and compliance requirements are just too different, and digitalisation alone can’t overturn that.
That’s why it’s a very healthy trend that a lot of the SME market is being targeted by fintechs, many of which, in turn, are being supported by the big banks through their venture capital arms.
If it’s the fintechs that will take the lead in innovating access to finance for SMEs, they should get the necessary support across the ecosystem for their endeavours.
GTR: How do you see the digital trade ecosystem evolving in three to five years?
Binns: It’s not going to change overnight, but I see the pace of change accelerating, especially if as an industry we work towards laying the essential foundations. Being realistic, given some of the complexity of the issues that we’ve been talking about, this is a 10-year journey. But the next three to five years will be critical in making sure we can achieve success in 10 years and can look back and say ‘we did a good job’. In the meantime, it’s all about collaborating as an industry and with the likes of the DSI to push towards greater standardisation across all the different elements of digital trade.
DeVilbiss: I think James is right about the journey being longer and more changeable than we probably recognise. If you looked back at what we were talking about at conferences five years ago, a lot of people thought that by now, everyone would be using blockchain and that it would be solving all of our problems.
As we’ve since seen, that obviously hasn’t been the case. So I question our ability to predict things in the technology space. Maybe in three to five years, we’ll all be some version of ChatGPT.
There are two core elements that I believe will help us in shaping the landscape. One is the adoption of MLETR, which will provide the legal framework and with it the comfort to execute digital trade globally. The second is the adoption of global API standards in the trade space. I think some, but not all, of that will be done in the next five years.
No matter what, unfortunately, the other aspect is that I don’t think we’ll ever get rid of paper documents completely. There’s going to be a much longer lead time on that than anyone wants to believe, and we need to be prepared for it. That’s my view, but I’d love to be surprised.
Mar: In terms of what the DSI is working towards, the five-year target is having all trade standards digitalised and MLETR ratified, or at least in the legislative calendar, for 80% of global trade flows.
I still think that both of those objectives are achievable.
Another area of focus for the DSI is seeding digitalisation and building capacity, which I think is going to be a bit of a slog because we’re starting from such a low base. I think we can make good progress by driving adoption and focusing our efforts in, say, the top five export-intensive industries in the supply chain.
The real challenge as we go forward will be in steering the industry as a whole to being part of one conversation. There is frequently a separation between the physical and financial supply chains, even though we’re talking about the same thing. We should work towards building standards and practices together so that we don’t duplicate processes in systems that don’t connect. We are essentially one system and collaboration should be a top priority.
The information herein is not, and under no circumstances should be construed as, an offer or sale of any product or services and it is provided for information purposes only.
This is not research nor a product of Barclays Research department. This information is not directed to, nor intended for distribution or use by, any person or entity in any jurisdiction or country where the publication or availability of its content or such distribution or use would be contrary to local law or regulation. Barclays PLC and its affiliates are not responsible for the use or distribution of this information by third parties.
Where any of this information has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
The information herein does not constitute advice nor a recommendation and should not be relied upon as such. Barclays does not accept any liability for any direct or consequential loss arising from any use of the information hereto. For information on Barclays PLC and its affiliates, including important disclosures, visit www.barclays.com
