200327 Zekkar Article 1920x1280
200327 Zekkar Article 1920x1280

Trade in times of uncertainty

The rapid spread of the coronavirus (COVID-19) has affected businesses and disrupted supply chains all over the world, with both domestic and international trade inhibited as a result. In response to the volatile environment for buying and selling goods, companies may seek to find safer structures for conducting trade.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea, says: “The uncertainty caused by COVID-19 was first felt in Europe as a supply shortage, with manufacturers in the supply chain facing multiple challenges to maintain their regular levels of production. This then moved over to also become a demand shortage within and between various national markets due to the sudden fall in consumer spending and  business to business demand in multiple industries.”

“There is of course widespread uncertainty regarding how companies in different industries and geographies will be affected by this downturn, in particular as it is unclear how long it will take for things to return to a level of normality. At Nordea, we experience many questions from our customers regarding the current situation in Spain, Italy or France, for example, and what we expect the outlook to be. Some customers may have suppliers in Italy or a big market for selling their goods in Spain. They are obviously concerned about what will happen and whether they will be able to conduct trade and also be able to pay for that trade,” continues Patrik Zekkar.

Finding ways of maintaining liquidity in the light of reduced cash flows and minimising trade risks are essential steps in ensuring businesses can maintain stability during challenging times. As the uncertainty caused by the impact of the coronavirus on trade continues, increased risks may make it more difficult for companies to find alternative funding.

Patrik Zekkar adds: “Undoubtedly, even after we have come through this period of uncertainty, there will be changes in the way many companies operate. Any deteriorations in credit will be material and hit companies in their borrowing costs as banks and lenders seek increased protection. There will also be a request from companies for more safe structures to trade within.”

Any deteriorations in credit will be material and hit companies in their borrowing costs as banks and lenders seek increased protection. There will also be a request from companies for more safe structures to trade within.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea

Finding a secure environment to trade

The we.trade platform is one area that may be able to help as it offers companies a chance to keep their trade processes running as smoothly as possible. As all companies signed up to we.trade are pre-approved customers of one of the consortium of we.trade member banks, a secure and trusted environment for managing trade has been established.

Patrik Zekkar says: “We.trade is a good example of a structure that makes trading safer for various reasons. A very important factor is that you have full traceability of the trade and trackability which means you always know where your goods are. You are able to mitigate your risks and also keep an ear firmly  to the ground by having banks on both sides of the trade validating the daily status and condition of your counterparty.”

We.trade allows companies to use their working capital at a significantly lower risk and gives them access to cash that would otherwise be tied up during the buying and selling of goods and services. Buyers are able to avoid making a pre-payment for deliveries by instructing their bank to issue a conditional payment guarantee. Sellers can extend payment terms with no negative liquidity implications as their bank can discount the receivable in relation only to the risk of the buyer’s bank, thereby removing the need to introduce credit limits for the seller.

We.trade is a good example of a structure that makes trading safer for various reasons. A very important factor is that you have full traceability of the trade and trackability which means you always know where your goods are.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea

Carry on trading

Patrik Zekkar continues: “Importantly, we.trade provides companies with a regulatory framework for trading which ensures that they receive legal protection. On top of that, we.trade enables payments or deliveries to be made conditionally. This means that you have the possibility to secure that you have fulfilled your obligation and therefore should be paid. Or in the same way, that you have not received the goods unloaded from the truck, for example, and therefore you shouldn’t pay. So there’s also that traceability for securing payment obligations.”

In potentially restricted markets, we.trade enables trade to take place that might not have been possible due to uncertainty and complexity, thereby helping to keep economies moving. The platform allows companies to reduce their credit risk by using payment guarantees instead of increasing overdraft facilities and by supporting short-term and self-liquidating transactions in the ‘real economy’.

Assessing how the COVID-19 outbreak will affect trade in the future, it is easy to predict a strengthening of supply chain contingency planning and a move towards platforms and structures that make trading  more robust.

Patrik Zekkar, Global Head of Trade Finance & Working Capital Management at Nordea

Patrik Zekkar concludes: “Assessing how the COVID-19 outbreak will affect trade in the future, it is easy to predict a strengthening of supply chain contingency planning and a move towards platforms and structures that make trading  more robust. This naturally leads towards fully digital, paperless and automated platforms like we trade. Improving the security in your trade, as well as the visibility and transparency will undoubtedly help in these changing times.”

Contact your Nordea Trade Finance advisor for further assistance or find out more about we.trade here.

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