Trade Finance Global heard from Simon Kleine, Director at East & Partners Europe, on the State of the Global Supply Chain Market, focussing on UK – China trade corridors.
A global view on supply chain volumes shows that most (65.8%) come from cross border sales orders rather than domestic orders, and recent forecasts expected
A fundamental aspect of supply chain sales orders, whether on an international or domestic basis, is how these orders are funded. There are three types of supply chain financing methods that are most common among all geographical regions, these being, letters of credit (LCs), term credit lines and working capital financing. Across the world, large corporations are still using traditional methods of funding despite new methods of funding being available. And when asked how important these types of financing were to these markets, ‘letters of credit’ were the most important method particularly with the manufacturing and wholesale industry.
With this in mind, the biggest upcoming supply chain funding initiative for corporates around the globe was more off-balance sheet financing of all kinds. This growing trend provides an opportunity for banking and other financial providers to explore new ways in which businesses can finance their supply chains without affecting their balance sheet.
With this understanding, it serves as greater value to understand what type of providers companies tend to opt for when financing their supply chain. Interviewing these corporates revealed that domestic banks have been the business’ most used provider for this service. The average number of domestic supply chain financiers used across the globe is around 12.4, whereas for international banks, it is 1.8, and for non-banks, 0.8. These figures illustrate strong market share for domestic banks.
The geographical areas where corporates had the most challenge in getting supply chain funding were China, with over 40.6% of businesses holding this view, but also Africa and Latin America, with just over 20% struggling to access supply chain finance.