Here’s how we can prepare ourselves and support our clients in this era of continued volatility:
1. Risk Assessment: Rethink, Reassess, Repeat
Risk assessment can no longer be a once-a-year tickbox. With policies changing at speed, we must adopt an agile approach. Those of us working during the banking crisis recall writing weekly credit memos and it's we did to ensure zero losses and sustained confidence in our clients.
- Collaborative Analysis: Work closely with internal risk and market analysts to gauge the effects of new tariffs on bilateral trade relationships. Use internal data to understand risks facing your particular client and tailor the solution.
- Sector-Specific Focus: Manufacturing, especially in automotive and technology sectors, is particularly vulnerable. Rising tariffs on raw materials and components lead to higher production costs, driving up consumer prices. Assess how resilient your clients are to potential dips in demand for high-cost items like cars and electronics.
- War Gaming: Use lessons from the pandemic to simulate various scenarios. Consider factors like shifting supply chains, alternative sourcing options, and evolving trade relationships. Our clients have survived Covid, can they continue operating through continued volatility?
As clients pivot toward onshoring, nearshoring, and "friend-shoring," their needs for risk mitigation tools may change. Letters of Credit (LCs) could see renewed importance as companies navigate unfamiliar supplier bases. Does your institution have the global reach and flexibility to support this shift?
2. Documentation: The Hidden Burden
Trade has always been paper-intensive, but tariff wars bring additional layers of complexity.
- Tariff Codes and Certifications: Revisions to customs valuations and certification requirements mean exporters and importers must be meticulous. Even when tariffs favor clients, they still need to validate domestic content for preferential treatment.
- Operational Readiness: Increased scrutiny by banks could delay processes, especially if documentation discrepancies arise. Are your operations teams prepared for the heavier workload?
- Tech-Driven Efficiency: Digital tools are no longer optional, we've been saying that for decades!. Investing in systems to streamline documentation checks and minimize errors will be critical to staying competitive.
3. Compliance: Stay Ahead of the Curve
Geopolitical dynamics will inevitably lead to evolving sanctions and export controls.
- Horizon Scanning: Partner with governance and regulatory teams to anticipate changes and adjust strategies accordingly. For example, heightened scrutiny on technology exports to China may demand more detailed documentation and stricter protocols.
- Leverage Technology: Trade digitisation has been our focus and now more than ever investing in automation to manage compliance efficiently is crucial for core trade.
4. Supply Chain Financing: Resilience Is Key
If COVID taught us anything, it’s that global supply chains are fragile. And while the pandemic may have eased, disruptions remain a constant threat.
- Supplier Diversification: Encourage clients to evaluate the risks of over-reliance on single or geographically concentrated suppliers. Diversifying sourcing strategies can cushion the impact of tariff changes.
- Risk Mitigation: Help clients understand how tools like supply chain financing can secure liquidity without overextending on debt. These solutions can provide the stability needed to weather volatility.