Realigning Trade for Future Growth

A Tale of New Corridors, Technologies, and Connections

How can treasurers manage the impact of continuing uncertainty and re-alignment in the trade space? Barclays’ Jaya Vohra, Global Head of Trade and Working Capital, and Michaël Hache, Head of Trade Finance, Export Finance, Working Capital, France & Benelux, investigate the options and opportunities.

“I think most treasurers have become acclimatised to a higher degree of trade disruption in the world since the pandemic,” comments Vohra. “However, the ongoing tariff landscape has pushed business uncertainty to new levels – and that has resulted in delays to their financing and investment decision-making.”

This perspective on the world of trade will resonate with most corporates, large and small. And yet, Vohra also notes that this community is finding ways to  navigate the major challenges and, in many cases, their actions are unlocking new opportunities. Many now see unpredictability almost as a constant, and, knowing that it is not feasible to remain motionless until ‘the right time’, they are now evolving and  “creating more diversified and resilient models for the future”.

Preparing new corridors

The idea of the cheapest supply chain being the main goal has been supplanted in many cases by the quest for the most secure. Vohra notes, too, the need to build resilience into supply chains, and, certainly for retailers, a desire to reduce over-reliance on China and its lower-cost production capabilities.

Supply-chain disrupted companies not entirely focused on their domestic market are thus considering reshoring and nearshoring as part of that diversified mix of supply chain locations.

From a European viewpoint, Hache says offshoring to nearshoring is now being augmented by the concept of ‘friendshoring’. Here, companies are relocating their supply chains or manufacturing bases to countries deemed political and economic allies.

He explains: “The dynamics of trade is changing so that rather than importing certain finished goods from far afield, the aim now is to produce these either domestically, closer to home, or at least in trade-friendly nations.”

As with the UK, France is also seeking to develop new trade corridors, states Hache. For example, while it does not have the same historical connection with India as the UK, India is nonetheless a key French target.

 “The firms that are now re-evaluating their supply chain routes, trade partners, and where they establish their factories, will be the quickest to adapt.” Doing so, he believes, will present them with an opportunity to move ahead of their competitors.

While diversification is the supply chain watchword today, “keeping an eye on the cost-base” remains part of the equation, states Vohra. This places some existing partner countries such as Vietnam, India, Bangladesh, Turkey, Egypt, and Pakistan further up the agenda. “We’re seeing these as obvious markets for companies looking to build up relationships as part of their programme to diversify and mitigate some of the political risk emerging from China.”

Diversification of sales markets is also coming into focus, observes Vohra, as firms seek to reduce concentration risk. “Western retailers are looking at expanding into emerging markets, such as the Middle East, Southeast Asia, and Africa. And they’re using more digital entry points into markets where they’re less established, testing whether they’re able to scale.”

Vohra also notes that many retailers are looking again at underserved customers in their domestic markets. Again, this might be achieved through more convenient digital access points as a complement to their traditional store formats. There’s also an observable trend of some companies increasing exports to lower-risk markets outside the US, including Australia, New Zealand, and Singapore.

Realigning strategies

In support of UK trade, the British government recently published its industrial and trade strategy Invest 2035: the UK’s modern industrial strategy that, Vohra says, clearly calls out certain key sectors the UK is going to focus on, for example, advanced manufacturing services, and working with key new partners across emerging markets. The paper underscores the importance of not diluting current key UK target markets, such as the US, India, and China as stronger trade ties with emerging markets gather momentum using new regional trade hubs.

To capitalise on potential new trade strategies and stronger ties with emerging markets, treasurers will need to re-evaluate their current approach. The main change is the need to anticipate how new dynamic supply chains will affect existing investment plans. For many corporates, especially the largest, supply chains are well established, Hache explains. “If these long-standing connections are now seeing changes to materials sourcing, inventory, warehousing, manufacturing, and logistics, for example, their financial requirements and impacts, across the board – from working capital and banking, to funding and FX – will be changing too.”

Treasurers will have to extend or perhaps form new relationships and agreements with external partners, including banks. There could be considerable additional work to cover the operational requirements of trade changes, but Vohra suggests that it will be “important to align strategically with governmental direction as well as looking at emerging markets, because that’s where support will be available to help treasurers navigate these uncertain and complex landscapes”.

As an example, she says Barclays released a report on opportunities for growth through the UK-India economic corridor, outlining key policy recommendations for the UK government. Subsequently, the UK-India free trade agreement has also been announced. “By following the national strategic direction, it will reveal to corporates the support mechanisms being put in place to help open up those targeted markets, such as increased export finance availability.”

Connect and thrive

One way of offsetting some of the additional treasury effort demanded by current volatility in the (largely paper-based) trade space is through the deployment of appropriate technology. “There’s a great body of digital activities that treasurers need to explore in this context,”  recommends Vohra. “The first phase is to ensure that internal ERP systems, and their front- to back-office compliance systems, are up to date and connectable with the outside world.”

Following on from this, she says the adoption of tools such as optical character recognition (OCR) can create new efficiencies in the processing of paper-based trade-related documents. “A number of banks and corporates are currently looking at extracting information from these documents and turning it into more structured data.”

The third stage is to bring about widespread adoption of digital trade documents. “This will be a multifaceted long-term transformation programme,” cautions Vohra. Discussions to date have been centred on a public/private partnership model.

Barclays has been co-chairing a Digitalisation of Trade Taskforce in partnership with the UK Department for Business and Trade, and the International Chamber of Commerce United Kingdom (ICC UK). This taskforce has now concluded and has published key recommendations to support digitalisation of trade in the form of a Roadmap for Digitalisation of Trade in the UK, released by the ICC UK in December 2024. The report highlights the key players in the digital transformation journey, outlines the respective roles each must perform, and describes the immediate benefits and next steps for each.

“However, while progress is being made, corporates need to be a significant part of this journey because today, around 80% of world trade is open account, which means banks never see the underlying trade documentation,” notes Vohra. However, she continues, in addition to trade bodies such as the ICC, governments also have a major role to play in unlocking the benefits of digitalisation.

“If we, as banks, digitise trade documents, can customs processes also be made more efficient by using data drawn directly from those documents? And, as a result, can some of the bureaucracy around customs processing also be reduced? These are the types of benefits that we need to see unlocked for corporates so that they, in turn, can build a stronger business case to increase their own investment in digitising trade.”

From a European perspective, digital development within trade is a matter of great interest to treasurers, says Hache. However, conversations with clients reveal that some technologies – notably blockchain – are perhaps overcomplex for their day-to-day needs. “What they’re interested in is more palatable everyday solutions that still provide as much connectivity to the external world as possible and are able to reduce their costs.”

The broader adoption of usable digital trade solutions requires the legal frameworks around trade processes to evolve, suggests Vohra. At a global level, possibly the most important component of the transfer of trade documents into an electronic state is the ICC’s Model Law on Electronic Transferable Records (MLETR). This has been created to provide a legal technology-neutral framework that enables their use. So far, only 10 countries have adopted it, despite the ICC having set an ambitious goal of 100 MLETR-compliant countries by 2026.

At a domestic level, the Paris Europlace initiative is an active means of accelerating the adoption of digital solutions in France. The critical areas of focus here are on e-BLs, e-LCs and digital documentary collections. The UK’s Electronic Trade Documents Act 2023 also provides legal recognition for electronic trade documents, including bills of lading and bills of exchange, placing them on the same footing as their paper equivalents.

The aim here is to establish confidence in digital systems. “I don’t think the regulators need to do much to spur on digital trade. I think it’s more about governments globally helping to establish or endorse certain key platforms,” comments Vohra.

Of course, corporates don’t want to spend a lot of time carrying out their own due diligence from a technical or a legal perspective, she explains. “But if governments mandated their own procurement chains to move onto digital platforms, then corporates will follow. That’s the conversation we’re now trying to drive.”

Vohra notes that the UK government has led a public consultation asking whether e-invoicing should be mandated universally. The EU, for instance, already mandates e-invoicing for public procurement, and some member states have extended this to B2B transactions.

Talking standards

Discussions today in treasury often reference AI. Indeed, says Hache, “we are already having dialogues with clients who are interested in hearing more about how it can help them in their financial predictions, risk assessments, and the general automation of their trade processes”.

AI will be able to help treasurers in a trade context, agrees Vohra. But, she adds, first the foundations need to be established. “To create end-to-end visibility, and then use AI to help with analysis and predictions, the right data needs to be able to be digitally captured. And to be truly valuable across trade systems, there also needs to be a high degree of standardisation of that data.”

To this end, Vohra notes that the ICC is making good headway not only with MLETR, but also with its Digital Standards Initiative’s (DSI) Key Trade Documents and Data Elements (KTDDE) report. This explores how 36 key trade documents can be harmonised, and represents a clear step towards global interoperability.

In tandem with these vital efforts, Vohra says key treasury technology providers – for instance, ERP and TMS vendors – should start adopting these standards. “Only then can corporates make progress without having to spend the time and effort creating those standards and adopting them themselves.”

Furthermore, Vohra says the creation of digital identities for all corporates has also been mooted. This would serve many purposes, initially as a means of addressing authentication and potentially KYC process challenges. But then it would also expedite digital cross-border trade, and even reduce the time it takes to obtain financing and working capital.

Advocating for success

With much work to be done in this space, it’s clear that treasurers need to stay abreast of progress. The role of banks such as Barclays in keeping clients informed, and lobbying for change in the right direction, is key to the success of trade digitalisation.

Speaking of Barclays’ close involvement in the drive for trade digitisation, Vohra is clear on the intention. “We need to have a co-ordinated cross-industry, public-private partnership approach,” she asserts. “It’s no good leaving individual players to think about and resolve matters on their own.” The effort of the ICC, government, and corporate representation by banks will steer the space towards a proper implementation plan, with key actions for each player being tracked, she explains. “That level of co-operation means we are now able to move from the recommendations, made over the past two years, towards implementation.”

The goal now is to create corporate awareness, alignment and accessibility, especially at the SME level, without creating unnecessary or unacceptable investment costs for them, says Vohra. “In much the same way that electronic signatures were adopted during the pandemic and retained to this day without fanfare, so we now need to create that same level of ease for corporates to move to digital trade.”

Recognising the way forward

With ICC’s global reach, the same messages that are being heard in the UK or France for example, are being replicated across the trading world. With those governments that have enabled MLETR working with a similar roadmap, the level of interest in digital trade is building: the WTO’s e-commerce exploration of digital trade services has now been signed by 91 countries, accounting for more than 90% of global trade.

Of course, the pace of adoption depends on individual need, observes Hache. While major trade flow participants may wish to rapidly pursue automation to ensure agility and security, there will be other flows where paper-based processing presents no real challenges. “But, as banks, we still have a role as educator because we can advise on the best way to support each of those different scenarios.”

Ultimately, the paper-based processes that have been embedded in trade for centuries will change. With more conversations about system interoperability and scale now taking the place of conceptual blockchain schemes and limited-reach platforms, there is more belief in the feasibility of global digital trade.

This means more investment by all stakeholders, and more government focus and cohesion on making it happen. And perhaps spurred on by current global market instability, there is finally recognition that making trade easier and more secure between all participants is indeed a sensible goal for future growth.