The challenge
BASF decided to reallocate its merchandise business into China to better serve local markets. A new entity, BASF International Trading (Shanghai) Company Limited, was established in the Shanghai Free Trade Zone (SFTZ) and designated as the pilot. Given the highly specialist nature of documentary trade, as well as the foreseeable huge transaction volumes, it has been BASF’s top priority to streamline the handling procedures and to optimise efficiency. The company had the following key objectives:
- Improve documentation quality.
- Shorten documentation delivery lead-time.
- Optimise cost.
- Digitalise to obtain flexibility, especially under the emerging circumstances as a result of the COVID-19 pandemic.
The solution
BASF assigned its Asia Pacific Trading Centre (APTC) in Kuala Lumpur, Malaysia, to be the team to centrally prepare tens of thousands of trade documents against payment (DP), documents against acceptance (DA) and export letters of credit (LC) for the Asia countries. The team provides expertise and offers a standard service to ensure high documentation quality and to reduce the turnaround time.
BASF China treasury team worked in partnership with Citi to reach an e-trade model that enables the APTC team to effectively facilitate remote application as well as documentation preparation. The E-trade solution covers the complete trade collection lifecycle, from sales order, online export LC, advising services (if any), online document checking under export LC/DA/DP, and BASF direct presentation, to confirming and settlement. Relying on technology innovation advances, a host-to-host (H2H) gateway for integration with SAP ERP is assessed and designed to facilitate the smooth and rapid flow of funds, logistics and information throughout the entire trade chain. The electronic one-stop platform not only enhances visibility for all counterparties, but provides a global standardised procedure, which optimises internal communications.
Best practice and innovation
The traditional documentary trade process model requires original documents be delivered between the presenting bank and BASF. This de-centralised operating model, where applications are initiated by separate Customer Service Officers (CSO), not only affects communication efficiency, but also impacts operational risk caused by unassured documentation quality as well as a lack of overall visibility and control.
The innovative e-trade solution provides an end-to-end handling procedure for documentary trade transactions, a streamlined processing flow to involve different counterparties at different locations, and a robust online model to centralise the operation. The solution relies upon the highly interactive and full collaboration among BASF’s Customer Service Officer (CSO), Asia Pacific Trading Centre (APTC), the buyers as well as the banks.
Key benefits
- Operation efficiency.
- Standardisation, transparency, and centralised control.
- Optimises cost.
- Flexibility on remote working.
The e-trade platform successfully demonstrates how innovative digitalisation can be embedded in a traditional transaction to optimise efficiency. This arrangement improves trade business efficiency, eco-system connectivity, flow visibility, and provides agility and adaptiveness for fast replication.
“Our decision to leverage the remote shared service centre to centralise all the export trade significantly reduces costs and risks by moving the majority of the documentation preparation work to a streamlined operating processing centre that is ready to handle sizeable transactions and a large variety of transaction types and situations. Under the circumstance of remote shared service centre arrangement, a centralised online E-trade solution, which enables transparency and quick interaction, is essential to obtain efficacy,” says Judy Zhang, Greater China Senior Treasury Manager.
It is worth mentioning that under the current circumstances, the COVID-19 pandemic has accelerated requests from treasurers for more digitisation, remote and real-time solutions. This solution has proved an effective way to facilitate transactions and pave the way for a fast-growing business and, following the successful pilot of China, BASF has started to expand the solution and processing model across more of its Asian footprint.
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