A New Chapter In Digital Trade
For thousands of years, goods and services have been exchanged between different trading partners. But as supply chains have scaled, the $23 trillion world of global trade has only grown in complexity.
Large multinational companies' supply chains now comprise ecosystems of intertwined suppliers, buyers, logistics and other relevant trade players. Supply chains in the manufacturing industry can reach up to 25 tiers, often including hundreds of parts suppliers spanning almost every corner of the globe. Yet, many of these participants are not well connected and operate in information and technology silos.
In the physical supply chain, the movement of goods and services is still dominated by manual, paper-based processes (documentary letters of credit, bills of lading, invoices etc), which add unnecessary costs and inefficiencies and deliver little in the way of transparency and visibility when it comes to understanding the status of goods and payment for them.
But with the fourth industrial revolution upon us, promising to deliver a highly interconnected, digitised world - where smart devices seamlessly connect to payment, trading, inventory management and logistics networks — the world of trade will look a whole lot different in the future. A world where all parties in the supply chain — from small and medium-sized companies, to large multinationals — have the potential to benefit from greater cost savings and efficiencies.
Enabling transformational change
Distributed ledger or blockchain technologies, application programming interfaces (APIs), data analytics and machine-learning algorithms, are creating a new era of trade flow management and trade finance. DBS has invested heavily in its API platform. DBS RAPID (Real-time APIs with DBS) offers 'plug and play’ solutions for trade financing or settlement directly where our customers conduct their trade activities or within their ERP environment. We are leapfrogging legacy platforms and technologies to directly integrate new digital services into our customers' workflow – whether in trade, payments, collections, FX or reconciliations.
Information about buyer/supplier relationships and transactional flows can be extracted at source and used to identify financing opportunities in those parts of the supply chain where it is most needed, which goes some way towards addressing the $1.5 trillion trade financing gap identified by the Asian Development Bank.
APIs on their own are powerful enablers for digital transformation, but when coupled with blockchain technologies, has the potential to propel digital trade to a higher plane. The blockchain connects all parties in the supply chain and delivers greater transparency and automation of paper-based processes. Critical trade information is recorded securely on a common platform, which overcomes the challenge of 'digital islands' or silos of information that have arisen as supply chains grow in scale and complexity.
DBS RAPID has been a game changer for many industries that have deployed it, such as in the commodities, automotive, logistics and natural rubber sectors. We developed digital solutions that help strengthen supply chains, enable quicker disbursement of funds, deliver greater price and market transparency, and provide access to more affordable working capital, especially for small and medium enterprises.
Overcoming key industry pain points
In the automotive logistics sector, DBS partnered with Wanxiang Blockchain, a Chinese blockchain provider, and China Capital Logistics Co. Ltd (CCL), one of the largest automotive logistics companies in China, to create a blockchain platform that connects car manufacturers, exporters, logistics carriers and car dealerships. Users of the platform can view the delivery status of orders in real-time and enjoy an expedited credit-approval process due to the elimination of paper-based supporting documents (which shortens their working-capital cycle).
“Developing solutions that solve our customers’ business pain-points is our objective, and we’ve learnt that the best way to do that is through collaboration. By partnering with key industry leaders, we were able to tap on each other’s expertise and networks to develop a blockchain platform with the scale and reach to make a meaningful impact to the automotive industry in China.”
Neil Ge, CEO of DBS China
In the commodities sector, there is an over-reliance on paper-based processes, with little visibility of the end-to-end supply chain, from the point of purchasing raw materials, through to the manufacturing and shipment of the final product. DBS collaborated with the world’s leading natural rubber producer, Halcyon Agri Corporation to set up HeveaConnect – a transparent digital marketplace to trade sustainably processed natural rubber. The platform – where DBS owns a minority stake, connects all participants in the supply chain so that pricing and supply information can be more easily tracked, offering the scale required to effect change in the rubber industry. DBS brings experience in digitisation as well as being able to offer services including working capital, trade and commodity financing for buyers, and financing to small-holder rubber producers who may not have access to banking facilities.
DBS also worked with Agrocorp and blockchain technology provider Distributed Ledger Technologies to develop an end-to-end cross-border blockchain trade platform to digitise the entire process for commodities transactions. At any point in the supply chain, trading partners can leverage DBS RAPID to trigger a real-time payment or leverage available data relating to a trade to seek financing. Farmers now receive payments for their goods more quickly, and all parties in the supply chain can more easily trace where commodities are sourced from.
Bain & Co. estimate that blockchain or distributed-ledger technologies can reduce trade finance costs by between 50% and 70% as document checks are fully automated, which reduces the risk of manual errors. This is proven by the above real-life examples. The blockchain can also help companies promote sustainability within their supply chain by allowing businesses to more easily track where goods and raw materials are sourced from. Companies can be incentivised to meet certain ESG criteria via the provision of financing at attractive rates.
Revolutionising trade through data
Data analytics and artificial intelligence (AI) bring higher levels of predictability and intelligence to the world of trade. Trade finance has traditionally been a data-intensive business and technologies like Optical Character Recognition (OR), machine learning and robotic process automation — all forms of AI — can be used to more easily detect fraud in trade transactions, as well as manage high volumes of manual data entry and repetitive tasks with greater efficiency and accuracy.
'Intelligent OCR' enables computers to digitally format data fields in trade documents without any human intervention, results in substantial efficiency, cost savings and reduces the risk of errors due to manual data entry. This is important in the world of trade where businesses survive on extremely thin margins and faster turnaround times can hugely impact working capital.
AI can also help companies better manage risk in their supply chains. Data analytics can be used to detect patterns in transaction flows so companies can make better production and working capital forecasts and predict changes in logistics and inventory flows. Behavioural forecasting tools could be used to more accurately forecast actual revenue inflows for given products, channels, or business lines.
The Internet of Things (IoT) will deliver new and abundant data that can be harnessed to track shipments through geolocation data, to monitor volumes and values of stocks held in storage facilities to provide precise information and financing options, or enter into sale and purchase transactions remotely with complete confidence in the quality and ownership of assets.
"By reimagining and innovating banking, our approach is to embed ourselves in the customer journey and harness technology to deliver strategic value to our clients. Leading the charge in trade digitalisation, we are actively collaborating and co-creating with clients, fintechs and government agencies to help solve business problems, expand our digital connectivity and deliver ecosystem solutions to our clients in a bid to help transform trade interactions and supply chains globally."
Sriram Muthukrishnan, Global Head of Trade Product Management, DBS Global Transaction Services
(This article was first published by TXF on txfnews.com in September 2019.)
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