Deutsche Bank: Trade Finance, A Tool for Tough Times - Axel-Peter Ohse
The economic pressure bearing down on corporates is pushing companies to wring every drop of efficiency and liquidity from their supply chains. Banks are finding innovative ways to help their clients achieve this, resulting in the re-emergence of trade finance as Deutsche Bank's Axel-Peter Ohse explains to Jim Banks.
Linking the physical and financial supply chain in companies is more important than ever as the economy weakens and liquidity is scarce. Finding ways to unlock cash from inventory and speed the flow of money along the supply chain would help many companies meet the challenges that arise from the downturn. Attitudes to risk have shifted and this has implications that ripple along the supply chain.
'The perception of risk in every industry has changed. In the automotive sector, for example, original equipment manufacturers are paying higher interest on borrowings in capital markets than mid-cap suppliers sometimes pay to their local banks,' says Axel-Peter Ohse, head of Trade Finance Germany for Deutsche Bank.
'In many sectors there are also liquidity issues with former outsourcing projects. Today, companies find themselves reliant on the availability of finance to their outsourcing provider, often in low-cost production locations, where there may now be funding problems. You essentially take on these problems with the outsourcing deal,' he remarks.
Ohse points out other pressures on liquidity, including a significant curtailment of trade credit insurance limits, which may force many corporates to change risk hedging strategies and procedures dramatically.
'Liquidity, in terms of available funds for making payments to trading partners, is a key constraint as is market liquidity. Whole markets such as the previously vibrant asset-based security and commercial paper markets have dried up considerably. When liquidity is scarce, the corporate treasury must be at the centre to coordinate with everybody,' he adds.
Deutsche Bank has a long tradition of helping companies optimise supply chains, services which are increasingly popular among businesses looking for liquidity with minimised risk. The bank noticed a change in the corporate attitude towards keeping and enhancing sustainable relationships with suppliers and their funding providers.
'There is clearly a transition to quality and sustainability. You must be able to rely on banks to stand by their services and the credit they give. Financing trade is about seeing liquidity flow through the supply chain. Buyers need to look through their direct suppliers to the supplier level below to ensure that liquidity can flow. Supplier scoring is becoming more granular and large clients now measure key performance indicators on financial sustainability along the entire supply chain,' says Ohse.
Inside and out
To successfully optimise its physical and financial supply chains a company’s internal departments must work together closely. There must be clear communication between finance, procurement and operations in order for the organisation to function in an integrated way.
'Banks and finance teams need to better understand how procurement and logistics work. These parts of any business must understand how things like credit analysis work. Aligning their incentives will give an organisation more flexibility and improve the quality of linking up with the financial chain,' says Ohse.
'Today, there are a handful of global network banks offering trade finance, which can service nearly every market more efficiently than many local banks. Integrated industries are now looking to global network banks and using platforms such as Deutsche Bank's to build integrated processes and increase liquidity and sustainability,' he adds.
This will also enable organisations to take advantage of the new products and services that banks are developing for financial supply chain management in areas such as inventory management.
'The question is how to efficiently manage inventory and keep a hand on financing it. You can pass this on to the vendor, or you can manage it yourself – in both cases it is important to understand the degree of sustainable funding available. Trade finance solutions being short-term in nature and self-liquidising, offer transparency and moreover can minimise risk,' says Ohse.
For an organisation with the internal structure and external relationships that enable an integrated supply chain, trade finance could be the right tool in a tough market.