Treasury Today Country Profiles in association with Citi

Shaping up and shipping out: Maersk expands trade finance offering

International container cargo ship transporting good overseas

The shipping container line now offers trade finance to its customers in five markets around the world.

Danish shipping giant Maersk Line’s mission statement is to enable global commerce. To achieve this the company offers trade finance to its customers in five markets: India, Singapore, Spain, the Netherlands and the US.

Simplified journeys

Maersk’s trade finance offering is part of the company’s ambition to simplify and digitise how its customers do business and thus simplify global trade.

“The processes behind global trade are still very cumbersome, time-consuming and expensive,” says Vipul Sardana, Global Head – Maersk Trade Finance. “In fact, many of the core processes are completed as they were over a century ago; this doesn’t have to be the case anymore.”

Maersk is very active in leveraging technology to digitise its processes. For example, 98% of its customers’ bookings are made through its electronic channel – just as a seat is booked with a commercial airline.

Although this work is beneficial for both Maersk and its customers, for the company to achieve its ambition of enabling global commerce, it must do more.

Overcoming financing challenges

Most notably, Maersk’s customers cannot always access sufficient and readily-accessible finance. Indeed, the WTO recently reported that access to capital is one of the biggest inhibitors to global trade

More than that says Sardana, Maersk’s customers say that when they use a bank’s trade finance product there is always a trade-off between security and simplicity. “A Letter of Credit mitigates risk but it is inefficient, complex and often costly,” he explains. “The Open Account, however, provides simplicity but does very little to mitigate the risk.

“It is a shame that this decision has to be made as both security and simplification are critical to the future of global trade,” Sardana adds. “But banks are very cautious to make trade finance transactions and their entire product suite is designed to mitigate the underlying risks.”

Maersk’s offering provides both security and simplicity, says Sardana. “We have a digital platform that our customers use to apply for financing,” he explains. “After they apply we can utilise a wealth of data to quickly, but diligently, check their creditworthiness.”

Once a credit line is granted and Maersk takes control of the shipment it pays 80% of the purchase order (PO) value to its customer. Upon completion of the shipment and once the consignee pays 100% of the PO value the shipping documents are exchanged and the process is complete.

All round benefit

Maersk’s customers benefit using this solution by accessing financing quicker, allowing them to do more business sooner. “Banks normally release funds when the Bill of Lading is provided, which is generated two to three days after the ship sets sail,” Sardana explains. “Given that cargo is typically handed over to the shipment company well before the ship sets sail, companies may have to wait two to three weeks to get the Bill of Lading and therefore delay financing.”

Maersk’s customers also do not have to post any additional collateral. “The only thing we dictate is that the goods are shipped with Maersk,” says Sardana. “We mitigate the risk because we have ownership of the cargo and know exactly what it is and where it is going.”

Sardana says that feedback is good and that Maersk has extended over US$100m of finance to about 150 customers since the solutions launch in 2016. “Customers want to do more business with us as a result,” he says.

Future trading ecosystems

Maersk is not stopping here. Sardana notes that it will continue pushing the bar and working with the broader trading ecosystem to drive further digitisation.

“We have digitised the documents that facilitate financing, but there is still a lot of inefficiency in the system,” Sardana concludes. “Digitising the broader trading ecosystem using technology such as the blockchain is our next focus and we have already made a start towards that through our partnership with IBM.”

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