Bringing clarity to supply chain finance

Bringing clarity to supply chain finance

Christian Hausherr, the newly-elected Chairman of the Global Supply Chain Finance Forum sits down with ITM to discuss the critical work that the organisation is doing.

Can you tell us about what the GSCFF do please?


The Global Supply Chain Finance Forum (GSCFF) was founded after the publication of the ICC’s Standard Definitions for Techniques of Supply Chain Finance and is made up of five global associations who all have an interest in developing international trade, namely: BAFT, ICC, EBA, ITFA and the FCI. The primary focus of the GSCFF is to provide guidance on supply chain finance for the wider supply chain finance community.


Our activities comprise but are not limited to providing guidance on supply chain finance to define ‘good market practice’ in supply chain finance, anticipating and preparing the ground for rules for supply chain finance, helping to clarify accounting treatment of supply chain finance techniques, working on a more comprehensive supply chain finance data study and identifying further topics and projects deemed as relevant by the forum.


How important is it to have standard definitions for techniques of supply chain finance?


Very important. When comparing today’s situation with where the industry was five years ago, there is much more clarity on what is meant by supply chain finance in general as well as on individual techniques. In the complex world of international trade, you need standards in order to efficiently work across regions and industries. The standards are not prescriptive in terms of naming or technology. Each market participant is free to develop and offer any product of their own choice to the market. The definitions are there to provide orientation and a reference basis for providers, clients and other interested stakeholders and they are technology-agnostic.


You have recently been elected Chairman of the GSCFF, what are you aiming to achieve over your term?


Being elected as the first Chairman of the GSCFF is a great honour and privilege and I very much look forward to bringing this initiative to the next level. My immediate goal is to form a group of qualified subject matter experts who will work on the individual projects we have identified as relevant. We have already received requests for participation from all over the globe and we are currently reaching out to each individual to sort out how we can coordinate the group so that it can efficiently work together. Candidates who are interested in joining the project are welcome to get in contact with us via our homepage My personal goal for the next two years is to make supply chain finance more prominent in the industry and work on the most pressing topics we are currently dealing with.


Why did you want to become Chairman of the GSCFF?


When I was asked by the forum earlier this year whether I would be interested in taking the role of the Chairman, I was very excited from the very first instance. Having been involved from day one in this initiative (which was in early 2014), I felt it was very important to further drive forward the concept of supply chain finance after so much effort had been invested from a global group of experts over the two years of writing the finance definitions. I regard it as the perfect product for the current time. It optimises working capital for corporates, it reduces risk for banks and it serves as an ideal basis for process optimisation – be it with distributed letter technology or the general evolution of technology. I am excited and proud to lead this initiative and look forward to engaging with industry stakeholders who are interested in leveraging this powerful set of tools for their benefit.


What are the priority actions that you feel you need to deal with?


We have an initial agenda of priorities that the forum is currently looking at. Clearly, the highest priority is around the question of accounting, which had already been prominently discussed over the past years among auditors and rating firms. But there are also other topics the forum will look into, for example, providing industry guidance on individual supply chain finance techniques. This guidance will be publicly available and is intended to be used as ‘good market practice’. Another area of interest is the question of whether ICC Rules should be written for supply chain finance in general or rather for individual supply chain finance techniques. All in all, we have identified five major fields of interest where we will have to find subject matter expertise to work on these projects.


How do you foresee that Brexit will impact global supply chain finance?


Supply chain finance is a subset of international trade, albeit its relative share in trade clearly increases. Any impact the Brexit will have on international trade to some extent will also impact supply chain finance. Supply chain finance follows the physical chains of corporate buyers and sellers. If corporates decide to refine their supply chains due to Brexit, this will also create repercussions in the financial supply chain. From a bank’s perspective, this may be seen as an additional client implementation project. Surely banks themselves must also take into account that certain supply chain finance techniques are a licensed activity in the EU, so any bank conducting EU-related business out of the UK will have to seek for alternatives on the continent.


Has global supply chain finance been affected by the US-China trade war?


Supply chain finance is focused on long-term business relationships between corporate buyers and sellers. These relationships may be domestic or cross-border and naturally also have a linkage between US and China. However, such trade relationships are built on a range of pillars like trust, quality, exclusiveness and, surely, commercial conditions that may be impacted by customs. My personal expectation is that we will not see quick changes in existing relationships, as any change in an ongoing supply chain can create substantial impact for a company. However, if changes are made, they will be thoroughly considered and transforming. Surely the speed of reaction will vary by industry: a change of the supply chain in a classical brick & mortar industry importing a bespoke component from a specialised supplier will take longer than in a knowledge-based industry.


How do you see the supply chain finance market evolving?


Hopefully, we will see increased adoption of the supply chain finance terminology! Besides that, I expect further automation. Technology has reached a level where platforms can communicate with each other via API’s and exchange data in a highly efficient and safe manner. We can see a range of DLT-style projects in the market, all competing to be the ‘killer application’ for the future. I expect we will see a competition of systems and networks over the next years, albeit no one can say how long this will take and who will survive at the end.


In terms of business value, supply chain finance is still at the lower end of the curve in spite of the attention that it currently gets. The supply chain finance ratio globally varies between 10% and 15% of the global trade finance volume, while the American region is the clear frontrunner with a ratio of nearly 40%. Today’s market adoption also indicates the need for standards, as these will support the further rollout of supply chain finance into the market.


Supply chain finance in itself is not a technology, but a methodological framework, which sets the ground for any technology supporting it. In the long run, I expect to see a further shift from traditional trade finance and an evolution of concepts and technology, providing corporates with effective and efficient working capital solutions.


What are the plans for the GSCFF over the next five years?


We will actively engage into the market and support the growth of the industry. It is our definite goal to establish the supply chain finance definitions as a globally accepted industry standard. Trade finance can be extremely complex business, it offers a way to reduce complexity and hence increase efficiency for all involved parties. Being an open and inclusive initiative supported by five leading industry associations, we believe the GSCFF is a perfect platform to foster the further market development.