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Trade

A Hidden Benefit of Trade Wars

January 31, 2020 by Emily Wu

The shifting sands of international trade have rarely been more precarious. Political and economic forces are changing global business in unforeseeable ways. Companies are delaying capital investments, searching for new supply chains, and making significant adjustments to business strategies.

These challenges are unlikely to end soon. “World trade will continue to face strong headwinds in 2019 and 2020 after growing more slowly than expected in 2018 due to rising trade tensions and increased economic uncertainty,” the World Trade Organization (WTO) said. “With trade tensions running high, no one should be surprised by this outlook,” WTO Director-General Roberto Azevêdo observed.

Surprising Benefits

Azevêdo is right. What is surprising, though, is that this turmoil is also leading to some extended benefits in the marketplace as companies seek to expand their supply chain and diversify their risk.

“Before now, globalization really meant dealing with one country, and very often, it was one of two providers or suppliers. So, it was not really globalization. It was basically international,” observed Stephen Carew, my colleague and Regional Manager in the Global Trade Solutions group at Bank of the West.

“This is maybe the beginning of real globalization, where even smaller companies are going to stop having just one simple corridor from their home country to another country,” Carew explained. “Instead, we’ll start to have several corridors with companies diversifying more of their risk, which will bring extended, long-term benefits.”

In other words, the real short-term pain of today’s trade wars could very well benefit these enterprises in the longer term.

Different Industries; Similar Challenges

For now, much of the impact—and pain—of today’s trade disputes depends on the industry and size of the company. For example, U.S. wine exports to China were down by one-third* in the first half of 2019 compared with the same period in 2017 because of Chinese tariffs.

For larger companies that can afford a dedicated procurement division, it’s often easier to navigate the current upheavals as they have resources to analyze markets, identify new partners, and pursue new strategies.

But for companies with less than $1 billion in sales, the person in charge of procurement is often wearing various hats. It can be more challenging to identify alternatives and conduct due diligence overseas, and that’s why it can be vital to seek guidance, if not assistance.

Exploring Expansion

In our experience, many companies do not realize how a global banking relationship can help them foster and expand their business in a sustainable way, with a variety of solutions adapted to each commercial and country situation.

Banks with a solid international trade franchise can indeed support importers in their efforts to diversify, or complement their supply chain, by offering tailored techniques to address the resulting sourcing and financing risks.

For exporters, global banks can mitigate the various risks derived from expanding to new markets or weathering through changes in the global economy, within bespoke credit, liquidity, hedging, and payment solutions. A bank with a local presence throughout the world can address each of these issues, and more.

Like many of our corporate banking clients, companies are often unfamiliar with the challenges of expanding into new markets, which typically includes three areas of concern:

  1. Commercial Risk
  2. Payment Risk
  3. Regulatory Risk

For both importers and exporters of goods, companies can be confronted with concerns over mitigating the supplier and product risk, while ensuring that new inbound commercial flow will not alter their liquidity position or pollute well-established commercial relationships and terms with their clients.

By combining Bank of the West’s knowledge of a local company with our parent BNP Paribas’ presence globally, we are able to provide the expertise and experience to assist with expansion. “Being able to tap into the international footprint of BNP Paribas has made a huge difference for my clients,” Carew said. For example, knowing to ask for contracts in both local currency and U.S. dollars can protect against currency fluctuations. “The creative solutions that we can come up with really can have a positive impact on our clients,” Carew added.

Navigating the Unknown

There is no way to ensure that future trade battles and tariffs will not disrupt a business. But anticipating possible challenges is key. Unfortunately, most companies are reactive to problems, rather than preparing ahead of time by laying the groundwork or pushing forward with new alternatives.

Most important is getting prepared now for the inevitable shifting sands that are most likely to come.

“It doesn’t make a difference if you haven’t been impacted yet. I would suggest getting prepared now,” Carew said. “Some companies stay concentrated in China, for example, and don’t even consider going elsewhere because it’s deemed to be too risky.”

“Actually, being concentrated is also risky,” he said, “and the lesson we are having right now is the hard way to learn it.”

Disclosure:
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Filed Under: Banking & Finance, Food & Agribusiness, Technology Tagged With: Trade, Tariffs, Pierre-Francois Choquet

The King of Grain

January 21, 2020 by Emily Wu

Corn is hugely popular cereal, with a global market of 1 billion metric tons per year. The U.S. accounts for one-third of total production and 40 percent of global exports. In all, 60 percent of corn is used for animal feed, while the remainder is used for ethanol and food products.

As emerging countries eat more meat, the demand for corn is expected to increase. But with one-third of the global crop genetically modified, GMO restrictions in Europe and China could hurt the market. The future of biofuel policies in the U.S. is also uncertain.

Filed Under: Banking & Finance, Treasury Solutions, Food & Agribusiness Tagged With: Trends, Agribusiness, Trade

Wheat: A World-Leading Cereal

January 21, 2020 by Emily Wu

Wheat is among the world’s leading food cereals. Human consumption accounts for 80 percent of the global crop. The rest goes for animal feed. The grain, mainly consisting of bread wheat or durum wheat, provides about 20 percent of all calories and protein in the human diet.

North America and Europe, including Russia, are top exporters. Countries with hot climates are the primary importers. The balance of supply and demand is critical, requiring careful policies to ensure adequate prices for farmers and affordable costs for consumers.

Filed Under: Banking & Finance, Treasury Solutions, Food & Agribusiness Tagged With: Trends, Agribusiness, Trade

Trade Risk Insights from Los Angeles

September 4, 2019 by Emily Wu

Global business has rarely been more uncertain. The future of cross-border trade and tariffs is impossible to predict, and the impact on currencies and supply chains is unclear.

Indeed, the heads of U.S. companies say trade and foreign investment policy is a top reason to change business strategy over the next three years. More than half of domestic producers say trade policies are one of their biggest challenges.

 

 

 

 

 

 

 

 

 

 

 

 

Source: PwC, 22nd Annual Global CEO Survey, January 2019

But there are ways to help address these unknowns. More-efficient global supply chains can release working capital. Businesses can be more agile by understanding local markets globally. From software developers to suppliers, working with partners that know the markets can help companies find ways to lower risk and find new options.

Global Lessons from Southern California

From her vantage point in Southern California, my colleague Charlene Davidson knows the impact of trade wars. With half of U.S.-China trade flowing through Los Angeles area ports, Southern California is on the front lines.

“In this environment, which remains uncertain, if you’re at all involved with a global partner, client, or materials source, then you need to be agile, adaptable, and smart,” she says. “During these times, liquidity, capital management tools, and trade finance strategies become especially critical to margin protection and the ability to reliably execute.”

Finding new suppliers and looking to other regions can also bring new ways to adjust to current trends. By managing liquidity, these companies can find advantages either to grow organically or through mergers.

“Over the long run, the most successful companies I’ve seen here in Southern California have been good planners, and have taken risks that were well thought out,” says another colleague, Joe Eitel, who has advised companies in Orange County for more than a decade.

Finding Partners for New Opportunities

Although Southern California’s economy has been resilient, businesses everywhere need to find partners that know how to steer through these uncertain times.

As part of BNP Paribas, we work with companies in more than 70 markets globally to help with complex trade issues and capital management. In this unpredictable era, I believe businesses need not only clarity about what they want to achieve, but also the agility to capture new opportunities.

This point-of-view is based on the article C-Suite Success and Global Trade Risks: Insights from Southern California.

Filed Under: Banking & Finance, Treasury Solutions, Food & Agribusiness, Technology Tagged With: Trade, International Banking, Global Expansion, Capital Management, Jean-Marc Torre

Changing Tastes in the Sugar Industry

July 16, 2019 by Emily Wu

One of the world’s most-traded commodities, the sugar industry has grown with the world’s population. Today, the top consumers of sugar are India, the EU, and China.

Sugarcane accounts for 80 percent of the world’s white sugar, with sugar beets making up the rest. Brazil, the top sugar supplier, represents 50 percent of global exports while producing one-fourth of the world’s supply.

Competition from other sweeteners and substitutes, as well as changing policies in the EU and India, have led to market uncertainties. Foreign exchange fluctuations and new ethanol rules also make the global market difficult to predict.

Sugar is refined from sugarcane and sugarbeet, providing ethanol and natural sweetener for a changing global market.

 

Filed Under: Banking & Finance, Treasury Solutions, Food & Agribusiness Tagged With: Trends, Agribusiness, Trade

Coffee Trade Meets Sustainability

July 16, 2019 by Emily Wu

Coffee remains one of the most-traded commodities in the world. The most popular, Arabica coffee, accounts for 60 percent of the market, while Robusta accounts for the other 40 percent.

Grown at altitudes above 1,000 meters, Arabica coffee is primarily sourced from Brazil. For the heartier Robusta variety, Vietnam is the leading producer.

Currently, one-third of coffee production is certified. But increasing market pressure has pushed producers to adapt to consumer demands for product quality, sustainability, and traceability.

 

One-third of the world’s coffee is certified, but with growing demand for a sustainable, high-quality product, traceability is key.

Filed Under: Banking & Finance, Treasury Solutions, Food & Agribusiness, Sustainability Tagged With: Trends, Agribusiness, Trade

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