Treasury Today Country Profiles in association with Citi

Innovations in trade

Container terminal at dusk

Paper documentation has been the mainstay in the trade space for a very long time. But in recent years the conversion to a digital format of some elements has taken place so is paper really on its way out?

Overseas trade has, for many hundreds of years, relied upon a full set of documentation to ensure the dispatch, shipment, offloading and receipt of goods by the paying customer. Such a requirement is unlikely to change dramatically, however, the form of that documentation certainly will. The trade world is shifting from paper to electronic and in doing so is ushering in an era of vastly improved administrative efficiency, security and accessibility.

That shift is a long and arduous one. Today, the issues with digitisation of trade documentation are not just legal. There is also a persistent perception that electronic documents are somehow less secure than paper and that they are open to abuse by hackers and other cyber-criminals. Of course, there is an element of vulnerability with all electronic systems; but paper has very little in the way of security.

So where are we now?

A trade conference in Singapore in August last year saw representatives of US food processing company, Cargill, and Australian mining company, BHP Billiton, take to the stage to discuss the use of electronic presentation (ePresentation) and electronic bills of lading (eBL).

In December 2012, BHP Billiton was part of the first-ever fully electronic presentation of letter of credit (LC) documents in mainland China, with partner the Sichuan Emei Ferroalloy steel mill and its receiving bank, China CITIC Bank (ANZ was BHP’s advising bank). That joint presentation was really a call to action of the industry for the adoption of new technologies.

That said, thoughtful solutions offered by the key players, particularly infrastructure providers such as SWIFT, Bolero and EssDOCS are now hitting the mainstream.

Digital law

If the law cannot always be relied upon to secure the transfer of goods when using a digital replacement for a bill of lading, it seems provident that the document itself should offer its own means for the transfer of contractual rights and liabilities. The providers of the Bolero and EssDOCS platforms have set up internationally recognised legal frameworks based on a common user agreement to enable such a transfer. SWIFT messages issued in line with the appropriate central bank guidance also have a legally binding effect on the sender.

EssDOCS dates back to 1986 in its first incarnation as the Seadocs (Seaborne Trade Documentation System) project and was the first significant attempt to use electronic documentation for goods carried by sea. It never got beyond the trial stage – but fast forward several years and with the problems ironed out, EssDOCS claims to be the largest eBL network globally. EssDOCS Exchange is its main multi-bank platform whilst its CargoDocs function enables banks and corporates to combine eBLs and supporting documents with eUCP Presentation, eDocumentary Collection and SWIFT’s Bank Payment Obligation (BPO).

Meanwhile, Bolero’s software-as-a-service (SaaS) delivery model provides trade solutions for large corporates in two key areas: multi-banking trade finance applications and electronic trade documentation. The idea in the first instance is to provide a single platform multi-bank electronic trade finance management tool for traditional trade instruments. Bolero also aims to dematerialise trade documentation, including the eBL, enabling end-to-end flow for trade under LC, open account and the BPO.

SWIFT’s role

As a key infrastructure provider, SWIFT is in a natural position to engage with the trade sector and it has done so most notably – in recent years at least – through the BPO. Despite a slow start, the ICC publishing uniform rules and technological standards for the BPO has given users of the solution the legal clarity they previously complained was lacking. And, in recent months, a number of high profile transactions have pushed the solution into the spotlight again. Corporates are increasingly looking to digital solutions in order to automate and streamline their trade processes and this naturally leads to the BPO, it seems.

Interest in the BPO is also increasing because the solution itself is developing and offering more value to corporate users. Take, for instance, the recent BPO+ transaction, a deal involving BHP Billiton, Cargill, ANZ, Westpac and facilitated by EssDOCS (who held the eBL in escrow). This was billed as a major milestone for global trade finance and cross-border payments because it was the first BPO transaction to utilise straight through electronic documentation end-to-end.

“Corporates are increasingly looking to digital solutions in order to automate and streamline their trade processes and this naturally leads to the BPO, it seems.”

In the messaging space, rapidly gaining credence is the relatively new MT798, SWIFT’s trade envelope aimed at de-risking open account trading. It is essentially a means of carrying the range of MT7xx trade messages used to initiate import letters of credit (LCs), standby LCs and guarantees, or to receive export LCs.

The MT798 transfers large documents from corporates to banks via FileAct, with FIN messages allowing corporates to communicate with the banks on both sides of a trade. SWIFT reported in June last year that 11 corporates and 27 banks had adopted MT798 messaging. As more banks offer this service to their corporates, adoption is expected to increase.

The forecast

With some trade documents and processes clearly in advanced stages of digitisation and others needing to catch up, full STP in the trade space is not yet a reality. Despite massive technological advances, paper-based trade is still common. For the use of e-trade solutions to be fully accepted across the industry, and embraced by corporates, alignment of all involved parties will be necessary.