Trade Finance TV: The new trade landscape


  • Atul Jain, Global Co-Head, Trade Finance and Lending, Deutsche Bank (video)
  • Christopher Fenske, Head of Capital Markets Research, Enterprise Solutions at S&P Global Market Intelligence
  • Dr. Nathalie Wlodarczyk, Managing Director, Gatehouse Advisory Partners
  • Dr Rebecca Harding, Independent trade economist


  • Clarissa Dann, Editorial Director, Deutsche Bank AG

    World trade as we once knew it is changing as it grapples with a new era of VUCA – volatility, uncertainty, complexity and ambiguity.

    The World Trade Organization calls trade “a force for economic recovery and resilience” [i] but what does this look like? “Global trade is really physically vulnerable to disruption,” opens Gatehouse Advisory’s Wlodarczyk. Harding adds that while values have risen (thanks to inflationary pressures) trade has become more fragmented with multilateralism harder to achieve. From a bank perspective, trade and supply chain discussions are now increasingly being “elevated to the C-suite” and governments – together with their export credit agencies – have become much more active and flexible, acting as transformation “enablers in this time of challenge” says Deutsche Bank’s Jain.

    As for inflation and interest rates, all agreed that the rise in both was changing the picture substantially from what it was even five years ago. “US mortgage rates are at 20-year highs,” explains S&P Global Market Intelligence’s Fenske.

    Our panel of experts then deep dives into what all this means for globalisation, the continued impact of oil shocks while the world is on its energy transition journey and how trade finance meets very different funding needs in this new order.

    Figure 1:  World trade in goods and commercial services, 2012–22 (annual percentage change)

    [i] WTO | World Trade Statistical Review 2023

    Presenter Clarissa Dann Welcome to Trade Finance TV. I’m your host, Clarissa Dann. Today we’re going to be looking with our expert guests on what’s going on in Trade. Has it changed its spots? Has it gone backwards or forwards? And what does the future look like? How does the crystal ball pan out?

    Presenter Clarissa Dann World trade as we know it is changing, isn’t it? The World Trade Organization calls it a force for economic recovery and resilience. But what does this really look like? And what have been the defining moments of trade sea change?

    Dr. Nathalie Wlodarczyk I think from a big picture perspective, the big realization over the last few years is that global trade is really vulnerable. It’s really physically vulnerable to disruption. We saw that with the pandemic initially, and certainly with the choke points that have come to a halt since. And of course, that’s been reflected in a lot of the actual trade volumes moving around the world.

    Dr. Rebecca Harding We’ve seen actually trade volumes not go up by very much, but we’ve seen trade values go up by quite a bit, which is actually suggesting that there’s inflationary pressures within the global trade system. And the World Trade Organization says trade is a force for good, but it’s also very fragmented in the way that Nathalie is suggesting. So I think what we have to do is be very realistic about what the prospects of 2024 are. For that very simple reason, there are a lot of challenges ahead.

    Atul Jain Content-wise, from a client perspective, what we’ve seen in terms of the way global corporates have had to think about, you know, what Natalie and Rebecca have mentioned in terms of both short-term liquidity management with that volatility, uncertainty, complexity, ambiguity, I’m using that deliberately to get to that acronym VUCA, which I’m going to try and use a lot. And then also from a longer-term strategic financing and risk management point of view, you know, the way we think about trade is almost unrecognizable from five years back, not only in terms of content, but I think interestingly, from a banks perspective, these discussions are now in many global corporates elevated to a C-suite level. And that for us has changed how we think about defining our client in coverage model, assessing and pricing risk, you know, working across the whole of our institution, across corporate and investment bank, working across global corridors and ultimately, you know, reallocating our resources. So it’s certainly not been boring.

    Christopher Fenske One of the big drivers here that’s actually shifting a lot of the trade is inflation. I mean, we are in a pandemic hangover from inflation in the case of the US, but also 20-year highs in the U.S., mortgage rates, so high mortgage rates, existing home sales to the lowest levels year over year in 2023, less turnover. You have actually less purchase of consumer durables, higher mortgage rates. You have less home equity. So people doing less home improvements. And then also in addition to that, higher rates also driving the US dollar higher. The USDA’s recent outlook on 2020 for agriculture showing a $30 billion trade deficit as a result of global growth in general.

    Dr. Rebecca Harding So inflation is incredibly important, but it’s actually not a big a problem as the higher for longer issue around interest rates. So it’s that that affects the pricing of lending pricing of deals. Bank of England, the European Central Bank, they’re all nervous about bringing rates down again. And I think the reason why is because there are still inflationary pressures in the system. And we’re seeing those particularly coming from supply chains. So if you look at what’s happening with Panama, for example, there’s obviously a drought, shipping is finding it difficult to go through that’s affecting soft commodities. Then you’ve also got the hard commodities goods as well affected by what’s happening in the Red Sea. So there are a lot of choke points in international trade that are creating challenges which also could affect inflation. So this is kind of a circular effect going on, which I think is adding to this kind of poly crisis or omni crisis, or as Atul says, VUCA.

    Atul Jain To an extent, we’ve seen this movie before, but the drivers for this are not entirely familiar. Nationalism, energy and food security or, you know, supply chain disruption, dislocation, resilience, and friend shoring, reshoring that comes off the back of that, and the AI revolution. I mean, you can add a multiple set of factors here. And certainly, for people like myself who are trade practitioners, it would be hard to find somebody who was doing this back in the 60s and 70s today.

    Presenter Clarissa Dann That’s a wonderful segue into globalization. Is globalization a distant memory?

    Dr. Rebecca Harding People are seeing risks in their supply chain, so they’re seeing difficulties in terms of the geopolitical situation, for example, in technologies or for example, in the wake of the Russia-Ukraine crisis. We’re seeing difficulties in terms of the strategic partners that we’re working with, but also then seeing dependencies on things like critical minerals towards managing our transition as well. So what’s beginning to happen, just purely in terms of the economics of supply chains, is that the global North wants to see a reduction in dependency on one single supplier because of physical things like choke points, because of geopolitical things as well. Well, I think the geopolitics behind all of this is kind of the elephant in the room at the moment, isn’t it?

    Dr. Nathalie Wlodarczyk I think that’s right. And I think there’s two dynamics that have in parallel pushing and pulling. And one is exactly, as you say, governments, countries, but also companies trying to secure their supply chains, which is a very reasonable thing to do. So you want to make sure that you’ve got supply chain security and reliability. At the same time, you’re also rethinking what some of those supply chains might need to be, because there’s a huge amount of innovation on the technology side. There’s the energy transition looming. So what will actually be required is shifting. But the second dynamic is that you’ve got some more tectonic shifts happening within the global system. And this goes to your globalization point, where clearly multilateral institutions are less relevant than they used to be. And I think that is the elephant in the room. And if companies and governments are no longer able to really rely on multilateral institutions as the sort of foundation of the norms of the rules of the game, then how do they start behaving? And are you back in a much more transactional relationship, trade relationships, more pragmatic, fluid alliances, which ultimately is just more uncertainty and more volatility to the VUCA acronym. Right. So harder to manage because it changes more regularly.

    Presenter Clarissa Dann Chris, what’s your thoughts?

    Christopher Fenske Protective tariffs? I mean, that’s I think one of the go-tos for a lot of countries, [they are] not always 100% effective, and often requires a significant amount of dissecting trading partners supply chains. Our supply chains recently published a report last month to assess the impact of tariffs on Chinese exports to the US. So a good example here. So many of the firms exporting from Asean are owned by Chinese firms or have significant imports of materials components from China. And section 31 tariffs only capture final assembly rather than having detailed rule of origin. Take an example. Vacuum cleaners covered 25% of duties under section 301. Imports from China dropped by 709 million in the past 12 months versus 2017, and those from Vietnam rose to 636 million. However, Vietnam’s imports of vacuum cleaner parts in China increased by 153 million over the same period, a sum equivalent to around one-quarter of the value shipped in assembled products. So there’s a lot of extra due diligence done on the financing side. Now, on the owner’s side, on your supply chain, you know, where things coming from, compliance, you know, a lot more time and effort and cost to go into that right now to solve these problems.

    Dr. Rebecca Harding The problem is that whole process of globalization has actually almost been turned in on itself. And that means that in terms of due diligence, in terms of supply chains, we’re facing a lot of more complicated decisions within banks. The banks are effectively the boots on the ground implementing these more economic nationalistic strategies, if you like. And that’s where the comment on multilateralism is actually so strong, because we’re seeing the fragmentation of that multilateral rules-based order, which is globalization, but trade is still there, and we need to work out a new way of doing it.

    Atul Jain One thing I can say is not only in terms of global corporate stepping up to these challenges with, I’d say, more thoughtful and deeper risk oversight. But from the business side, we’ve seen governments, via the export credit agencies, be much more flexible in their strategies and positioning themselves as enablers in this time of challenge. And, you know, that’s particularly true around everything pertaining to sustainable energy and infrastructure build-up. It obviously goes broader than that. And there are estimates that say that to get us to where we need to be, that’s still 3 to 4 trillion of spend per year until 2050. So by no means is this challenge solved, but we have seen governments and corporates stepping up to the task.

    Presenter Clarissa Dann Energy prices and oil shocks underpin everything in trade, don’t they?

    Dr. Rebecca Harding The forecast for energy prices over the next 12 months are actually for relative stability, despite the fact that there’s a risk of escalation in the Middle East, for example. So I think what’s interesting about that is the world has reacted very well to the crisis of 2022, the Russia-Ukraine crisis, and it started to think more about alternative energy sources. We have a huge energy transition problem now, which increases the amount of dependency on critical sources like lithium, metals, etc. Those elements are very important, but it also means we’re looking now at transition in a more serious way, because, number one, the pressures of climate change. February’s the seventh month in succession, where we’ve had global record temperatures. We also need to think very long, very hard about how we shift the dial. Trade finance Is absolutely critical to that process.

    Christopher Fenske 40 years ago, this type of disruption, like the Red Sea, oil prices would surge on the news. But the US shale revolution, is sort of the buffer now when there’s some sort of disruption in the Middle East or OPEC cuts, productions, things like distillates, gasoline, diesel, are a lot more sensitive. The price changes by the fact that they’re built for specific sources. So refinery needs to be using a grade of oil from a particular region. Takes a while to change it. So there could be bottlenecks there. Intermittent with gasoline, diesel, and home heating fuel fortunately been heavy to warm seasons in Europe the past few years. That’s kept natural gas prices relatively low, and caps supplies and storage on the higher end, where they typically are. The US is going to be making up for a lot of production that was lost from the Russian pipeline, you know, over the next couple of years, but that will take some time. Fortunately, we have been having a couple warm seasons that have actually suppressed prices and kept them relatively sustainable.

    Dr. Nathalie Wlodarczyk Part of this is about exactly that bumpy road ahead of how do you get through the transition period, and what are all of the multiple and frankly, multiplying competing priorities that come into play. So you’ve got the transition agendas. You also have energy security making a real comeback in terms of government priorities. And you’ve got technological innovation. And all of these things are going to be shifting around. Who ends up being competitive, in which market? Where you need to be sourcing from and what you’re sourcing. because its probably not the things that you’re sourcing today. And again, it’s more of a potentially tectonic shift, and those are always slower, and they will end up generating some real distortions throughout the whole trading system globally that will have to deal with. But I think a lot of that is about the pace of the volatility and how much you have to course correct on an ongoing basis and whether or not you’re well set up to do that.

    Presenter Clarissa Dann Let’s look at the next 12, 24, or even 36 months. What’s the shape of things to come?

    Dr. Rebecca Harding I don’t think trade is going to have an easy time. Elections coming up this year. We’re entering a period of greater fragmentation rather than globalization, which is what the World Trade Organization wants to see. Having said that, I think we are building resilience within our supply chain finance mechanisms. We’re building an understanding of the challenges that we face. And I think in terms of actual trade and the way we go about doing business, the way the banking sector is thinking, the way the corporate sector is thinking, is actually very positive to try and be the force for change and transition in the future. So I think on the ground there’s a lot of positive momentum. I wish I could say the same about what’s happening with the greater fragmentation of globalization.

    Atul Jain The good thing about complexity and uncertainty is, you know, for corporates, governments, financial institutions, there isn’t increasingly that for advisory, structure and risk management. And so as trade practitioners, that’s obviously what we can bring to the table in thinking about how we build our strategy for our institution and our business. You know, one thing that I really like to think about is what’s not going to change over the next 5 to 10 years, as best as we can figure that out, because then it allows you to kind of extract themes that you can more confidently build around. And we touched on a lot of those.

    Presenter Clarissa Dann Thanks. Closing thoughts Chris.

    Christopher Fenske One of the challenges, I think that’s somewhat underappreciated for the energy transition is consumer buy-in. Governments can push a consumer in a certain way, lead them in a certain direction, incentivize them to do certain things, but doesn’t necessarily mean they’ll go there. So a good example is EVs. EV transition in the U.S. may actually take a little bit longer than expected. You know, manufacturers are lowering prices to meet the market share.  Vehicles totally favor the U.S. there’s been a large rental fleet sale of EVs recently. Basically, there was not a lot of demand from those rental consumers. So yeah, this may take a little longer than expected unless, you know, governments continue to ramp up incentives to change consumers’ behaviors.

    Presenter Clarissa Dann Yeah. And Nathalie.

    Dr. Nathalie Wlodarczyk You talk about adaptation a lot in relation to the transition. But in terms of trade, if you can adapt to that uncertainty and get ahead of it. If you can absorb and price in some of the cost of that uncertainty, then it’s different, not necessarily worse.

    Presenter Clarissa Dann I’d like to thank our guest for their insights and of course you for watching. For previous episodes, do visit Trade Finance TV dot net and listen to us on Spotify.

    Published on March 19, 2024

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