“The missing link is the electronic movement of documents”
By Esther Tan
Tom Rahder, Vice President, Product Strategy at Bolero, discusses the benefits and future of electronic letters of credit.
Broken supply chains can, over time, lead to large amounts of inventories being held up, resulting in a waste of time and capital. Importers often experience the delay in receiving goods because of the slow arrival of documentation and they in turn refrain from releasing money to the exporters. Bolero - which actually stands for Bill Of Lading Electronic Registry Organization - was originally set up to perform electronic presentation of the bill of lading. Its electronic letter of credit (eLC) presentation capability also aids it to tackle the basic problem of matching the arrival of goods and documentation from the customs and logistic perspective and most importantly, the banking perspective.
According to Tom Rahder, Vice president, Product strategy at Bolero, eLC volume at the moment accounts for less than 1% of overall trade in 2013. This figure has increased from 0.01% less than a year ago. However, he pointed out that eLCs should instead be measured in terms of value, as the main sectors utilising eLCs are the big players in metals, mining and chemical, where trade flows range up to $25 billion annually.
Accuracy, the big issue
Large multinationals all face one similar issue - having one too many panel banks from the LC advice side. Most amendment processes are very manual with the use of multiple post-it notes. Complexity in these amendments can be removed through digitalising the process, reducing the highly probable human errors and trade cycle time by seven days, allowing companies to reap the financial benefits quicker.
“The missing link is the electronic movement of the documents. It is just as important to open accounts, documentary collection or other more complex trade policies,” said Rahder.
Many exporters demand banks to have a branch near their processing centres so that the documents can be presented physically. However, with electronic presentation, banks can win businesses without incurring additional costs by giving into that demand.
Conventional trade cycle takes up to 21 days on average
Figure 1. Cost and complexity involved in a trade cycle
Enhanced trade cycle reduced by seven days on average
Figure 2. A reduction in cost and complexity
Rahder stressed that priority should be given to the quality of a presentation – by acquiring all the information required on an LC, including amendments – rather than having a speedy one laden with mistakes.
If BPO was all theoretical, it would be a distraction
The launch of the Uniform Rules for Bank Payment Obligations (URBPO) by the International Chamber of Commerce (ICC) in May 2013 dictates what corporates can or cannot do. Under BPO, exporters are required to get the shipping documents to the importers via banks. This has led to corporates approaching Bolero to link the documentation ends of the trade.
Bolero was involved in some of the initial pilot transactions of BPO, to help with the electronic presentation of shipping documents. An early pilot BPO transaction which did not involve use of electronic presentation of original documents showed considerable delay.
The biggest challenge for Bolero following launch of URBPO, came in the form of the Japanese market. It is one of the most BPO-influenced markets. While most corporates saw BPO as a middle ground between LC and open account trades, Japanese banks envisioned BPO as a replacement for the LC and open account. This, however, is highly unlikely as it is most probable that the three settlement types will sit alongside each other. The trick for banks is to commercialise their offering to appeal to other potential users.
Going forward, exploiting the BPO process will be a key focus in the year ahead. This will involve working with clients on the next stage of their pilot programmes – for example, corporations that have already performed cash transactions without the electronic shipment of documents. Through these transactions, Bolero aims to demonstrate that the BPO and electronic presentation of documents are complementary for a seamless, end-to-end transaction.
Keywords: URBPO, ICC, ELC, EBL, Bolero, Tom Rahder, Supply Chain