The challenge
Currently, SABIC Asia Pacific Pte Limited (SABIC) receives letters of credit (LCs) from its customers which are processed in a conventional manual way to support its cross-border trade. The requirement to submit paper documents is administratively cumbersome, with the challenges amplified in the case of cross-border trades, given the time it takes to transport goods over a short distance between two relatively close buyers and sellers, compared to the time taken to process the exchange of paper documents between importer and exporter through the banks.
The gap between the two can range from anywhere between five to ten days. This potentially results in higher cost, slower product delivery and settlement, frequent demurrage charges and locking of credit limits of the buyer/customer for a longer time.
The solution
SABIC and Hong Kong and Shanghai Banking Corporation (HSBC), its banking partner, formed a working group to address this problem with a digitised solution using the best in class technology. To drive this change through an automated channel, SABIC identified a short haul cross border transaction involving one of its buyers in Malaysia.
In October 2019, SABIC and HSBC’s Singapore branch successfully completed a fully digitised trade transaction to support its sale of resin to a buyer in Malaysia, with goods being shipped from Singapore to Malaysia. The bank’s Malaysian office was the issuing bank of the underlying letter of credit, acting on behalf of the buyer in Malaysia, and its Singapore office was the advising/nominated bank, acting on behalf of SABIC.
Best practice and innovation
Using the Contour Network (previously known as Project Voltron), a single shared application to conduct the transaction, the exchange of fully electronic documents was completed in 24 hours, resulting in just-in-time inventory management, avoidance of demurrage charges, reduced turnaround times and release of manpower handling paper documents deployed for other activities. Through Contour, all parties had the autonomy to control and manage their data.
The quicker turnaround times achieved by exchange of documents over the platform could also help boost the efficiency of intra-ASEAN trade, characterised by many close-proximity shipping routes, which in turn helps trade to grow and flourish throughout the region.
Key benefits
- Faster settlement.
- End-to-end visibility.
- Scalable solution.
- Fewer operational errors.
- No port/demurrage charges.
- Reduced working hours.
- ‘Green’ and sustainable model as it eliminates use of paper and physical dispatch.
“The digitalisation effort is part of SABIC’s continued push to enrich the customer experience by embracing emerging technologies. In Asia Pacific, this includes enhancing our e-commerce platform, enabling automatic and timely delivery of information and improving our customer service and internal efficiencies. This is what we refer to as creating the Chemistry that Matters™ with key collaborations for our customers,” says Sylvia Hue, Manager, Cash Management APAC.
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