Attacks on cargo ships in the Red Sea in recent months have caused vessels to reroute around the Cape of Good Hope in Africa, producing longer and costlier trips. Happening simultaneously, the lower water levels along the Panama Canal have limited the number of cargo ships that can pass through the waterway each day.

Supply chains were also rattled not so long ago with the collapse of the Francis Scott Key Bridge in Maryland, which meant other U.S. ports had to step up and take on the shipping activity that the Port of Baltimore normally manages. There has also been a reported shortage of truck drivers stateside.

With all of these external factors in play – from public health crises to weather patterns to political discord – how can we protect our supply chains and – dare we say – even improve the relationships among selling and buying partners?

Export factoring.

Export factoring is a strategic tool to ensure cash flow

Trade finance is a set of financial tools that both improves a business’ cash flow and reduces its credit risk. Two well-known types of trade finance products are export factoring and supply chain finance.

Export factoring is when a financial firm buys a company’s receivables and advances them the majority of the invoice amount up front in cash (up to 90% in some cases).

This type of funding can also include credit protection and collections services. When this is the case, this full package is known as non-recourse export factoring.

Though manufacturers tend to choose export factoring services and retailers initiate supply chain finance with their suppliers, both umbrellas of trade finance achieve the same goal: better access to working capital all along the supply chain. A reliable source of working capital is critical to keeping operations moving along, despite any headwinds in global trade.

The waiting game

In today’s global trade landscape, there is often a wide gap between when an invoice is issued by the seller and when payment is submitted by the buyer. This is normal, though it can be a strain on supplier cash flow.

Payment terms between buyer and seller can be up to 3 months in some cases, meaning buyers don’t have to settle their invoices until 90 days after they have placed their order.

In fact, according to The Hackett Group, it takes large U.S. buyers an average of 54.7 days to pay their bills.

Factoring cuts this waiting period and converts unpaid invoices into cash up front. This method can be looked at as a “win-win” for both the supplier and the buyer, since the supplier receives additional liquidity right away while the buyer can enjoy extended periods until payment is due.

Why does getting cash right away matter to a supplier?

Well, in short, suppliers have vendors to pay too, and they can’t do so on schedule without sufficient capital on hand. By releasing the capital locked in their receivables, suppliers can pay their vendors in a timely manner, respecting these vital relationships needed to procure raw materials so they can continue to fill orders smoothly.

Besides paying their bills, manufacturers can also be looking to grow or expand their operations and customer base, which requires enough working capital to achieve these business goals. Many of these new buyers in new markets are also looking to negotiate longer credit terms, an arrangement that is attainable with trade finance bridging the cash flow gap.

Why do longer payment terms matter for buyers?

Trade finance allows buyers to optimize their working capital too. Without the pressure to pay suppliers right away, large retailers can invest in their operations, product offerings, footprint, employees, and their own growth and expansion aspirations. Having ample time to settle their bills gives retailers the opportunity to focus on their core activities and values.

Credit protection and collections services

Now, in the case a buyer happens to go bankrupt, trade finance still ensures that the buyer’s supplier gets paid. This is because trade finance, or non-recourse export factoring, includes credit protection to protect against non-payment in such cases of default.

This inclusion of credit protection allows suppliers to conduct business with peace of mind, without the worry of not getting paid.

These suppliers also benefit from the collections services that come as part of trade finance packages, which means the trade finance company is responsible for collecting payment from the buyer, giving suppliers more time to invest in their business.

The upshot

Cash is a major catalyst in allowing supply chains to function properly and operate smoothly. In a global trade environment that can be affected by everything from political discord to drought, reliable cash flow through trade finance is something a business can count on.

Trade finance provides easy access to cash by turning unpaid invoices into capital within 48 hours of verifying a business’s invoices, in some cases. Importantly, it supports payment cycles that work for all parts of the supply chain while reducing trade risk, allowing for strong, “happy” relationships and global trade dynamics.

These books cover vital subjects like supply chain management, geopolitics, leadership, business strategies, the AI economy, cultural diversity, and the historical context of global trade, offering valuable perspectives for navigating the complexities of the worldwide market.

1. The Culture Map: Breaking Through the Invisible Boundaries of Global Business by Erin Meyer

Erin Meyer’s book “The Culture Map” explores cultural differences in the workplace, emphasizing the importance of understanding nuances for effective communication and collaboration. She introduces “authentic flexibility” for adapting to diverse cultures while staying true to oneself. The book provides insights on virtual communication in multicultural teams and offers practical tips for successful cross-cultural interactions. Meyer’s work is a valuable resource for enhancing intercultural competence and succeeding in diverse professional environments.

2. The Value of Everything: Making and Taking in the Global Economy by Mariana Mazzucato

The Value of Everything” by Mariana Mazzucato critiques how economic value is measured and the blurred line between value creation and extraction in the global financial system. The book examines cases from Silicon Valley to pharma, illustrating how this confusion impacts innovation and inequality. Mazzucato calls for a re-evaluation of capitalism, public policy, and value measurement to promote sustainable economic growth. She challenges the idea that market prices reflect true value and argues for a re-politicization of value as a social and political concept. Professionals importing or exporting are well versed in the myriad of complexities in valuing products, services and components. This book offers a fascinating perspective on the whole system.

3. How the World Ran Out of Everything: Inside the Global Supply Chain by Peter S. Goodman

The book “How the World Ran Out of Everything” by journalist Peter S. Goodman explores the complexities and vulnerabilities of the global supply chain. Through gripping storytelling, Goodman exposes the intricate pathways of manufacturing and transportation that bring products to our doorsteps, while also unveiling the ruthless business practices that have left local communities vulnerable to disruptions. Highlighting recent events like the pandemic-induced shortages, Goodman illustrates how financial interests, market opacity, and deteriorating working conditions have placed the supply chain on the brink of collapse. By following the journeys of individuals from factories in Asia to striking railroad workers in Texas, Goodman advocates for a reformation of the supply chain to ensure reliability and resilience.

4. Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life, in Organisms, Cities, Economies, and Companies by Geoffrey West

Geoffrey West, a pioneering physicist in complexity science, unveils the hidden laws governing the life cycle of diverse systems, from living organisms to cities. Contrary to the complexity of these systems, West’s discoveries reveal an underlying simplicity that unites them. By applying the rigor of physics to questions of biology and mortality, West found that mammals, despite their diversity, follow scaling laws that relate their size to various biological characteristics. This groundbreaking insight extends beyond biology to include cities and businesses, where similar laws of scalability apply. West’s work offers a unique perspective on the fundamental principles governing diverse systems, relevant for professionals working in global business. “Scale” is a captivating journey through fundamental natural laws that connect us all in profound yet straightforward ways, illuminating how cities, companies, and life itself are governed by the same principles.

5. Pivot: The Only Move That Matters is Your Next One by Jenny Blake

If change is the only constant, let’s get better at it.

In “Pivot: The Art and Science of Reinventing Your Career and Life,” Jenny Blake, a former career development manager at Google, shares practical strategies for navigating career transitions effectively. In today’s dynamic economy, where job roles change frequently and career plateaus are common, Jenny Blake introduces the concept of the “pivot” as a way to methodically make your next career move. Drawing from her experience in Silicon Valley and as a career consultant, Blake presents the Pivot Method, a framework for taking small, strategic steps towards a new direction in your career. Whether you’re considering a new role, starting your own business, or transitioning to a new industry, this book provides actionable advice to help you move forward with confidence.

With practical guidance and real-life examples, Blake empowers readers to embrace change and chart a path towards greater career satisfaction and success.

6. The International Business Culture Pathfinder: A Practical Guide to Navigating Cultural Differences in Global Markets by Marvin Hough

Written by experienced CITP Marvin Hough, The International Business Culture Pathfinder is a collection of concise business culture guides for 11 countries, including Brazil, Canada, China, UAE, South Africa and more.

This book provides a comprehensive overview of each nation’s business landscape, cultural traits, and practical scenarios demonstrate the impact of culture on business. Whether you are a seasoned global business professional or just embarking on your international journey, this resource is indispensable for grasping negotiations, communication norms, relationships, management approaches, and time management in varied cultural settings.

7. Power And Prediction: The Disruptive Economics of Artificial Intelligence by Avi Goldfarb, Ajay Agrawal and Joshua Gans

In “Power and Prediction: The Disruptive Economics of Artificial Intelligence,” Avi Goldfarb explores the “Between Times” of AI evolution, highlighting the necessity for systemic changes in decision-making processes within organizations. Despite the transformative potential of AI, its widespread adoption has been delayed, akin to past technological revolutions such as electricity and computing. Goldfarb stresses the need for complementary innovations alongside AI advancements.

8. Dare to Lead: Brave Work. Tough Conversations. Whole Hearts by Brené Brown

Leadership goes beyond titles, status, and authority. A true leader is someone who takes on the responsibility of identifying potential in individuals and ideas and has the bravery to nurture that potential.

Renowned author Brené Brown, a four-time #1 New York Times bestseller, has dedicated decades to studying emotions and experiences that add value to our lives. For the past seven years, she has collaborated with transformative leaders and teams worldwide. In her book “Dare to Lead,” she delves into how courageous leadership entails recognizing potential, staying open-minded, sharing power, and embracing vulnerability. The book stresses the importance of cultivating human qualities like empathy, connection, and courage in a society dominated by scarcity and fear. It presents four essential skill sets for courageous leadership and advocates for choosing courage over comfort.

From the humblest middle manager to the CEO of a fortune 500 company, anyone who wants to lead effectively could learn from this book.

9. Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail by Ray Dalio

A few years ago, Ray Dalio observed unique political and economic conditions, leading to his exploration of repeating patterns in wealth and power shifts over the last 500 years.

“Principles for Coping with the Evolving World Order” delves into the most tumultuous economic and political eras in history to explain why the future is expected to be markedly distinct from our own experiences, yet reminiscent of past occurrences.

Ray Dalio discusses unique circumstances leading to global changes and offers advice on navigating upcoming challenges. Dalio’s analysis covers major empires and historical patterns to provide practical principles for preparing for the future.

For professionals working in international trade, navigating the turbulent geopolitical and economic environment is part of the job. Learning more context for how things evolve may just help you get ahead of the curve.

10. Prisoners of Geography: Ten Maps That Expla in Everything About the World by Tim Marshall

Journalist Tim Marshall’s book “Prisoners of Geography” explores how physical characteristics of countries like Russia, China, the US, Latin America, the Middle East, Africa, Europe, Japan, Korea, and Greenland and the Arctic, their strengths, vulnerabilities, and leaders’ decisions. In ten chapters and ten maps, the book delves into geopolitics and how geography shapes global strategies and historical events. It highlights the impact of geography on nations’ destinies and provides a fresh perspective on world affairs, something that is incredibly helpful for anyone doing business in foreign markets.

Knowledge is power, and continuous learning is the cornerstone of success in the evolving world of international trade. Share with us your top reads in 2024!

While every business is unique, taking inventory of what worked for other successful enterprises, and what didn’t, can help you keep your business on the right track and even boost it to the next level of profitability, growth, and customer approval ratings.

Keep in mind: learning from mistakes doesn’t just apply to our personal lives.

Let’s take a look at common mistakes international businesses make, and how trade finance can relieve some of the financial stresses that come with the territory of being an entrepreneur:

1. Poor cash flow management, the #1 reason small businesses fail

So many parts of running a business rely on a healthy cash flow. Working capital is not only used to cover everyday expenses like payroll and electricity, but it is also needed to pursue bigger plans like growth and expansion into new markets.

There are a couple of factors that can impair cash flow, however, leaving a company with a lower reserve of liquidity than it would like.

In fact, according to a report from Jessie Hagen, previously of US bank, 82% of failed small and medium-sized businesses went under due to poor cash flow management.

Too much growth, too little capital

Growing too much, too quickly, in some cases, can actually be detrimental for a business. Rapid growth may have the adverse effect of drying up cash and might ultimately send a business hurling towards bankruptcy.

This, in fact, happened to the ice cream brand Ample Hills, based in Brooklyn, New York. The company grew from a single local scoop shop to having a footprint of 17 stores nationwide, links with Disney, a presence in grocery retail outlets, and a stamp of approval from Oprah Winfrey, according to the New York Times. Though this brand never ended up expanding overseas, rapid growth without the right support can hurt businesses trading internationally just the same.

Brian Smith, Ample’s co-founder, revealed to the Times, “We made every mistake it is possible to make.”

This included an ill-placed location in Los Angeles and switching up packaging from a traditional round container to a square one. Even with the Ample Hills brand skyrocketing to success, decisions like these ultimately sapped the company’s cash.

Trading with long payment terms in place without the right oversight and support

While the demands of rapid growth may be one culprit for leaving a company cash-strapped, long payment terms with buyers can also drain a company’s liquidity if not managed correctly.

Today, many commercial transactions occur on open account terms, which means buyers are allowed to pay their bills months after an invoice is generated.

Recent data shows that large U.S. buyers take an average of 54.7 days to pay their invoices.

While giving customers the freedom to pay later can help a business win and retain orders, a company must be vigilant of the cash gap that can occur with such terms in place. Many businesses may find themselves needing to pay their vendors upfront, while still waiting on payment for their sales.

Without a keen awareness of the overlap in outgoing and incoming payments, cash flow might be jeopardized.

2. Selling domestically or internationally without having the demand needed to succeed

It can be the aspiration of many growing companies to expand domestically, or even enter new markets abroad. But without the demand overseas or at home, your product may turn out to be a flop.

According to a recent Forbes article titled “Small Business Statistics of 2024”, inadequate market demand is the second most common culprit for business failure.

Inadequate market demand is the second most common culprit for business failure.

“For a small business to be successful, it’s imperative not only to have adequate capital to sustain operations in the early stages but also to ensure there is a consistent and growing demand for its products or services,” the article states.

Given this common mistake, it’s imperative to conduct sufficient due diligence before launching a new product or service. A business must take the necessary steps, like conducting a market gap analysis and gaining a full grasp of the demographics they’re trying to reach, in order to set itself up for success.

3. Skipping credit protection

As we’ve seen in the past couple of years, several big-box retailers have gone out of business. These famously include Bed Bath & Beyond, Christmas Tree Shop, and Lord & Taylor.

When doing business with these large buyers, credit protection can come in handy if bankruptcy is looming for the retailer.

It’s not always easy to predict if a retailer will shutter, but the pandemic taught us that large brands can go bankrupt, and if they don’t fully collapse, then they can still be tardy on their payments to suppliers or skip paying them completely.

How trade finance can help businesses stay the course

Trade finance is a tool that can help businesses better manage their cash flow, reduce trade risk, and accelerate their growth, among other things. Companies of all sizes can take advantage of this financial resource, but small and medium-sized enterprises are especially known to benefit, since traditional banks may require them to meet stricter borrowing criteria.

If a business opts to use trade finance services, here’s how it works:

A financial intermediary will purchase their unpaid invoices and will provide them cash upfront in exchange. This sum of cash will equal up to 95% of the invoice amount.

By receiving this cash advance on the payment they are owed, a business can pay their own supplier on time, or on an earlier schedule. Retailers and other buyers can still enjoy longer windows to pay their invoices since the financial intermediary is able to close the payment gap.

What’s more, trade finance also includes credit protection and collections services.

This means that a business is guaranteed to get paid even in the case of buyer insolvency, as the financial intermediary absorbs the risk in this case and will ensure the business gets paid.

Since running a business requires a lot of focus on marketing, R&D, and customer service, accounts receivable management that comes as part of trade finance packages can take the burden of collecting payment from customers off the business.

The Upshot

Operating a business has its challenges, but it also comes with many rewards. Paying attention to the mistakes that other businesses have made can certainly protect a company from falling into the same pattern.

To get a better handle on cash flow, secure an extra layer of security, and get more freedom to focus on running core business activities, a company can consider trade finance as a solution that can clear hurdles and pave the way for success.

At a time when stability and access to working capital are essential, there is an urgent need for more effective, robust supply chain finance (SCF) solutions.

This makes the passing of a concise but extremely powerful piece of legislation particularly pertinent. The UK’s Electronic Trade Documents Act 2023 (ETDA) came into force in September.

While most businesses will likely have paid little heed to this development, its relevance is profound for companies of all sizes that trade domestically or internationally.

The legislation has an immediate global impact as between 60%-80% of all global trade is governed by English law, regardless of the domicile of the counterparties.

The ETDA reflects the essence of the 2017 UNCITRAL Model Law on Electronic Transferable Records (MLETR), that has been adopted by Singapore and the UAE amongst others, and which will form the root of similar legislation being adopted by G20 nations.

So, what is the ETDA? And importantly, what does it mean for businesses?

One small step for legislation

The processes behind funding trade and drafting their documentation largely rely upon the same laborious, manual methods. Consequently, they are insecure, inefficient, siloed, and impractical. Digitalisation is widely acknowledged as being the way forward for both physical and financial supply chains but applying digital capabilities to trade finance is not straightforward.

Unlike in other sectors of finance, where digital progress is more advanced, the rules upon which trade finance is governed date back centuries. Trade finance is therefore built on entrenched, longstanding legal specifications established for a paper-based age. The principles of “possession” and “transfer”, for example – which pertain to the exchange of trade documentation and are vital to facilitating trade finance – have remained largely unchanged in most jurisdictions.

In effect, according to the wording of global trade rules, paper documents are the format by which trade finance has to be conducted. And this has been the fundamental barrier to digital trade document adoption.

What the ETDA does is give certain documents commonly used in global trade the same legal status in digital form as their paper-based equivalents.

Superficially a small change, this amendment is the breakthrough that has been needed to allow digital documents to become mainstream and come into their own.

One giant leap for businesses and their balance sheets

Specifically, the ETDA has significant implications for negotiable documents such as promissory notes and bills of exchange. It is the digitalising of these documents – and their legal recognition – that is key. Free from the inefficiency constraints of paper, digital versions of negotiable instruments (or “DNIs”) are creating an avenue to transform and optimise SCF, and, in the process, discard inefficient and insecure paper-based processes.

From a corporate treasurer’s perspective there is considerable value to be gained – including, fundamentally, improvements to working capital through more effective funding and cost savings, with earnings within their existing supply chains.

DNIs are a scalable, flexible and binding promise of payment by a business. Crucially, this enables today’s fractured, impractical funding structures that result in lengthy payment cycles and strains on working capital to be completely inverted – from a “bottom up” approach to a “top down” one.

This means tying funding to the balance sheet of the issuer, rather than that of the generally weaker creditworthiness of businesses’ SME suppliers. A business can therefore borrow from a financial institution (FI) and then cascade funding down to their suppliers by issuing DNIs.

DNIs dispense with the separate assignment agreements and irrevocable payment undertakings (IPUs) that are currently necessary for the transfer of trade documentation. And, with the DNI the basis of the lending rather than non-negotiable invoices, not only can 100% of invoice values be financed, but payments can be made immediately, thereby massively speeding up access to funding across supply chains.

This approach enables smaller suppliers to optimise their working capital through early payments which, in turn, ensures supply chain security for the business, generates opportunities for supplier discounts, and improves buyer-supplier relationships.

DNIs also allow corporates to have far greater control of how and when they use SCF, including being able to negotiate payment terms with suppliers to pay early or on time, depending on their liquidity needs. They are inherently more flexible than existing solutions, meaning treasurers can effortlessly switch between different funding methods – such as employing either their own or third-party cash – depending on which is the most effective for them at any given time, predicated, for instance, on their business cycle or cash position.

For example, if a typically cash-rich business runs into liquidity issues, instead of having to limit their dynamic discounting programmes, they can use DNIs to access external liquidity to extend payment terms as needed.

In terms of bottom-line contribution, a typical supplier early payment programme using digital documents such as this, can result in annual net benefits of between 1-7% of cost of goods. Furthermore, regardless of whether supplier early payment discounts are negotiated, businesses can also use digital instruments to avail themselves of post maturity finance and can thereby ‘buy’ themselves an approximate additional 50% cash in hand (i.e. a 60 day supplier invoice is settled with a bill or bill drawn for an additional 30 days) to plug financing gaps as needed.

Harnessing Digital Negotiable Instruments (DNIs)

One consideration that must be made regarding DNI adoption is the ETDA stipulation that the use of a reliable electronic trade document system and sufficient security on electronic documents is required for a DNI to be legally recognised. While clarity regarding exactly what constitutes a “reliable system” is currently being sought, there are DNI solutions readily available that, by passing key possession and reliability tests, already conform with the ETDA’s definition.

These solutions, such as the TradeSecure platform, place quantum-secure digital seals around DNIs that require a specific cryptographic key and protect electronic signatures using quantum notary technology. Such capabilities ensure DNIs cannot be duplicated or tampered with, thereby assuring the ownership and authenticity of the instrument. Easy trackability also streamlines and automates the audit process.

ETDA: Enter The Digital Age

One can reasonably ask that, if the use of promissory notes is already possible, why don’t businesses employ them? Simply put, without digitalisation, this process was heavily reliant on physical, paper documentation, the inherent administrative costs that accompany it, and the slow pace of transfer via mail. As a short-term financing process (between 90-120 days), long turnarounds have made them previously not worthwhile.

With digital documents, there is no long waiting period for paperwork to move through the supply chain, creating a far more readily available cash pool. This is because digital instruments can be exchanged in (close to) real-time, expediting processes by approximately 10-12 days, and thereby enhancing time to revenue and operational efficiency.

DNIs can easily be integrated into current SCF programmes via APIs, making them interoperable with existing global trade platforms and businesses’ ERP systems. For smaller businesses that may not use ERP, invoice data can be uploaded simply using CSV files. DNI adoption is therefore non-disruptive, straightforward, and efficient.

Once onboarded, using digital trade documents rather than paper versions will bring direct cost savings, with costs linked to paper trade documents estimated to be three times more than their electronic counterparts.

There is little doubt that to the bystander that the ETDA is a dry and inconsequential piece of legalese. However, by enabling the digitisation of trade documentation, it and similar legislation being implemented across the G20 and beyond, promises to create opportunities for corporates to conduct trade financing unlike what has come before.

By issuing a digital promissory note (DNP) or bill of exchange that gets immediately financed by a financial institution and discounted by suppliers, and then being able to choose the timing and frequency of the use of these solutions is transformational for businesses – driving extensive commercial advantage. As businesses seek to seize the opportunities abound and adoption inevitably accelerates, let us enter the age of SCF 2.0.

With a recession being predicted to hit the U.S. economy in late 2023 and early 2024, the job market is slowing down as fears continue to mount. The tech industry in particular contributed to mass layoffs this year, driven by some of the biggest names in the world including Microsoft, Meta, Google, Yahoo, Amazon etc.

Google’s parent company Alphabet reduced their workforce by approximately 12,000 roles. CEO Sundar Pichai wrote in a letter to Google employees “we hired for a different economic reality than the one we face today.”

The global economy is slowly recovering from the aftereffects of the COVID-19 pandemic and grappling with situations like regional conflicts and disrupted trade routes. This also means that the international trade landscape is evolving drastically and so is job insecurity.

In such a dynamic job market, there are certain roles that are growing increasingly popular. The demand for skilled professionals in these job roles is skyrocketing.

So, if you’re looking for jobs with good scope and stability globally, consider exploring international trade. Let’s look at some of the fastest growing international trade jobs in 2023 globally and how you can break into these thriving sectors.

Marketing international trade jobs

The global marketing landscape is more diverse than ever before. A career in marketing usually involves good pay and quick growth. According to the U.S. Bureau of Labor Statistics there is expected to be a 10% employment growth rate for marketing managers from 2021 to 2031. Professionals who understand international markets and consumer behavior are in high demand. Here are some of the most in demand global trade jobs that in the  marketing sector.

1.    Global Growth Manager

As an increasing number of businesses continue to expand globally, the demand for multifaceted professionals who can identify and capitalize on opportunities for expanding businesses internationally is greater than ever. Forbes talks about hiring the right leaders as one of the keys to getting global expansion right. Here is where Global Growth Managers come into the picture. They meticulously research market dynamics, consumer behavior, and emerging trends to formulate strategic plans for global expansion. By leveraging data-driven insights to navigate international business landscapes, they are indispensable assets in the quest for sustained global growth.

2.    International Business Development Executive

International Business Development Executives are instrumental in fostering global growth for companies operating in today’s interconnected world. Their job role involves nurturing strategic partnerships, collaborations, and alliances with businesses and organizations worldwide. With a deep understanding of international markets and the skills needed to identify new business opportunities in various regions and industries, these executives are at the forefront of forging international connections and creating synergies in the global marketplace.

E-commerce international trade jobs

E-commerce has become a cornerstone of international trade. With global e-commerce expected to show an annual growth rate of 11.17% from 2023 till 2027, it’s safe to say that it’s a thriving industry. Hence, it’s no surprise that the demand for skilled professionals to fill e-commerce jobs is at an all-time high right now. So, let’s explore some jobs that are increasingly growing in demand in e-commerce.

3.    E-commerce Operations Manager

At a time when e-commerce is thriving, E-commerce Operations Managers act as the driving force behind the seamless functioning of online businesses across borders. The U.S. Bureau of Labor Statistics reports that approximately 2,300 new jobs will be added for general and operations managers in e-commerce between 2016 and 2026. E-commerce Operations Managers are responsible for orchestrating and optimizing the day-to-day operations of e-commerce platforms, ensuring efficient order processing, inventory management, and timely delivery to customers around the world.

4.    E-commerce Business Analyst

Analytics is taking the world by storm and more businesses are recognizing the importance of leveraging big data in their expansion strategies. According to the World DataScience Initiative, about 80% of global enterprises are investing in a data analytics division, creating a great demand for analysts. E-commerce platforms collect a wealth of data and here is where E-commerce Business Analysts come into the picture. They are responsible for deciphering and decoding data and transforming it into actionable insights that drive strategic decisions. They are the analytical minds behind the success of international online businesses.

5.    E-commerce Project Manager

Project Managers are a crucial part of every organization and industry and e-commerce is no exception. The Project Management Institute’s ‘Project Management Job Growth and Talent Gap 2017–2027’ report predicts that by 2027, employers will need nearly 88 million individuals in project management-oriented roles. E-commerce Project Managers take on the responsibility of planning, executing, and overseeing critical e-commerce initiatives. Their role is pivotal in delivering projects on time and within budget, which is a necessity in today’s rapidly evolving e-commerce landscape.

International supply chain jobs

The supply chain sector is the backbone of international trade – transactions within global supply chains account for 76% of world trade. This is why it comes as no surprise that in today’s rapidly evolving global marketplace, supply chain professionals are at the forefront of ensuring that businesses can adapt, grow, and remain competitive. Here’s an in-depth look at the top supply chain jobs that are growing in prominence.

6.    Director of Procurement

Procurement is an essential aspect of the supply chain and the role of Director of Procurement is a crucial one. These individuals are responsible for securing the necessary materials and resources for businesses to operate on an international scale. This includes sourcing products globally, negotiating contracts, and managing supplier relationships.

7.    Supply Chain Analyst

Several predictions highlight that the demand for supply chain graduates will go through the roof in the next two years due to the fragility of global supply chains. Those will the skills of a Supply Chain Analyst should have no trouble landing a position. Supply Chain Analysts are experts who gather and analyze data on inventory, transportation, and production to identify bottlenecks and inefficiencies. They use this data to make informed decisions that enhance the supply chain’s efficiency and responsiveness to market changes.

8.    Process Improvement Manager

Process Improvement Manager is a relatively new job role but one that is rapidly growing in popularity. Their key responsibility is to find ways to enhance the overall efficiency of supply chain operations. They do this by identifying opportunities for streamlining processes, reducing waste, and improving the overall productivity of the supply chain. By implementing Lean and Six Sigma principles, they strive to drive continuous improvement, in an effort to make supply chains more agile and cost-effective.

International trade finance jobs

The finance sector in international trade has grown leaps and bounds over the past decade, with professionals playing a pivotal role in both financial management and technological adaptation. Diverse job opportunities and the integration of technology into financial practices means that the finance sector offers a promising career path for those seeking to navigate the financial frontier of international trade. Let’s look at some roles gaining more attention.

9.    Financial Risk Analyst

According to the Association for Financial Professionals Risk Survey, financial risks were among the top four risks having the greatest impact on earnings in the next three years. Financial risks can often make or break a business and this is where the role of Financial Risk Analysts becomes crucial. These professionals identify and manage the financial risks associated with international trade, including currency fluctuations, credit risk, and market volatility. They also curate risk management strategies to protect businesses from adverse financial events and help them navigate the complexities of international markets.

10.    Fintech Consultant

With the global fintech market being expected to reach a market value of $326 billion by 2026, the need to leverage this innovative technology in international trade is becoming imperative. Fintech Consultants help businesses achieve this by advising them on how to harness financial technology (fintech) solutions to improve their international trade operations. They help companies adopt digital payment systems, blockchain, and AI-powered financial tools to enhance efficiency and reduce costs.

Navigating the fast-growing world of international trade jobs

International trade is flourishing and so are opportunities for those equipped with the right skills and knowledge. If you have the right training and credentials, you’re one step closer to landing one of these lucrative jobs. Invest in specialized education, such as degrees in supply chain management or finance, to get the foundational knowledge needed to excel in these fields.

In addition to that, credentials that show you have knowledge and skills in key competency areas of international trade will give you a competitive advantage in this job market.

Staying informed about the latest industry trends and global market developments is also crucial. Follow trade organizations on social media (we recommend connecting with FITT’s growing LinkedIn community), sign up for industry newsletters, and look for networking events in your area.

Lastly, hone your language skills, especially if you want to land import and export jobs, as proficiency in multiple languages can enhance your appeal to global employers. Once you have developed the skills to grow your global trade career, the world of international trade jobs is yours to explore.

For the seventh year in a row, we have earmarked a short list of what we humbly predict to be the most impactful evolving trends in global trade for the year ahead.

So how do we choose these 10 focus areas? It comes from a combination of research, monitoring of news and developments at the time leading up to publication, and an assessment of what seems to be most likely to affect global trade practitioners and import-export businesses in the coming months. We comb through social media trends, news trends, track the developments of the biggest economic and business trends from the past year, and consult with some knowledgeable CITPs to compile the list.

And even with all of that prep work, we often get it wrong. Because one of the most thrilling and nail-biting aspects of international business is the unpredictability of it.

For instance, you might be amused to note that our predictions for 2020 had no mention of the small matter of a worldwide pandemic and economic crisis  — in fact we predicted a rather uneventful year:

“This year looks to be less explosive, with fewer conflicts but a general slowdown in trade growth.”

At least we weren’t alone in failing to predict it.

What may be most appropriate in summarizing what to expect in the global business environment for the foreseeable future is to revive a popular acronym originally coined in 1987: VUCA

• V = Volatility
• U = Uncertainty
• C = Complexity
• A = Ambiguity

In fact, let’s get this out of the way from the start—the first trend we’re going to explore is the expected sharp downturn in global trade growth in 2023. While there is a lot to be hopeful and excited about in the year ahead (growth in renewables, skills-focused hiring, fintech developments), there are also some persistent global challenges that will carry over from 2022, including sustained inflation, high interest rates and energy costs, and the continuing effects from the war in Ukraine.

Read on for our 10 2023 trends.

Curious about our past predictions? Check out what we thought 2017-2022 had in store.

10 global trade trends we’ll be watching in 2022 

10 global trade trends we’ll be watching in 2021 

10 global trade trends we’ll be watching in 2020

10 global trade trends we’ll be watching in 2019

10 global trade trends we’ll be watching in 2018

10 global trade trends we’ll be watching in 2017

1. Global Trade Growth Slowing in 2023

In October, the World Trade Organization (WTO) readjusted its projection for merchandise trade growth from 3.4% to 1% for 2023 among continuing geopolitical tensions, inflation and lower global demand. The UNCTAD agreed, lowering their projections for 2023 in their latest Global Trade Update, published in December.

EDC published their annual year-end Trade Confidence Index, reporting that trade confidence has declined sharply for Canadian businesses over the past year and continues to decrease among concerns over rising interest rates and a looming global recession.

What’s particularly interesting about EDC’s findings is that of the 1,600 businesses surveyed for the report, a majority (62%) are still considering diversifying their markets and entering new international markets.

So, it seems that while there are challenges to be faced in the year ahead, trade remains resilient.

We’ll be watching to see if the projections pan out.

2. N-Tier Transparency

The N-Tier supply chain is made up of the suppliers that supply your suppliers. Put more plainly, it is the network of suppliers that provide components and services to “tier 1 suppliers,” the ones you directly engage as the buyer. This extra level of removal is what makes is so difficult to obtain a full picture of your entire supply chain from end-to-end.

Getting the full picture of N-Tier suppliers is key in risk management; this became apparent during the supply disruptions caused by the pandemic. Advanced risk management involving full transparency of higher tiers is becoming more common in the face of potential disruptions, such as natural disasters caused by climate change, political upheaval, and future health crises.

Environmental, Social and Governance (ESG) regulations are also becoming more prevalent and ramping up within both investors and governing bodies around the world. We see this continuing to evolve in 2023 and impact the way companies build and track their supply chains.

Having full transparency of all tiers is becoming more important for companies who want to stay on the right side of fines and other enforcement measures on the horizon.

However, this is still substantially difficult for companies to obtain as most risk management solutions are adept at identifying risks within the first tier of the supply chain but not those existing in the “N-Tier” level. In fact, in one recent McKinsey survey only 2% of companies surveyed had full visibility of their third tier or higher.

“That matters because many of today’s most pressing supply shortages, such as semiconductors, happen in these deeper supply chain tiers.” – Steve Banker, Forbes

Just under half had a full picture understanding of their first-tier suppliers and the potential risks in those environments. Solutions that can provide companies with a deeper understanding of their N-Tier suppliers through sophisticated analytics and AI are understandably increasing in demand, and this is something we will be watching develop as the year goes on.

3. ESG Regulations

You can’t talk about supply chain in 2023 without talking about Environmental, Social and Governance (ESG). The social and environmental impacts of supply chains have been making headlines and leading trends in the industry for years now. We included increasing regulations around sustainability and emissions in our Trends article from 2018, for instance.

In 2023, we seem to have reached a critical mass where ESG can’t be ignored. This January, the Germany Supply Chain Due Diligence Act came into effect in the fourth largest economy in the world. This legislation requires businesses to ensure that their entire end-to-end supply chains are free from environmental and human rights violations.

Gone are the days where companies can claim ignorance for what is happening in the higher tiers of their supply chains.

Investors and self-governing agencies are increasingly forming their own actionable ESG regulations as well. If that’s not enough motivation yet, consumers and employees are also putting the pressure on for companies to be more ESG focused.

KPMG provided three points of action that companies can take to ensure their supply chains are best equipped to track, report, and optimize for ESG:

• Operationalize your ESG strategy by aligning the objectives of each function within your business including Finance, HR, IT, Operations and Commercial. Ensure that there is internal collaboration and alignment with each function accessing and tracking the same ESG data.
• Capture real-time operational data along your supply chain for measurement and reporting of ESG matters.
• Build end-to-end visibility of the supply chain to see where your goods move, the organizations that are moving them, and their sustainability credentials. With this insight, make active decisions about your partners to reduce your scope 3 total.

4. Increasingly sophisticated cyber threats

As supply chains integrate more technology into their systems, they are also introducing more opportunities for criminals to exploit vulnerabilities and hack into them. Alongside the adoption of IoT devices, or equipment like barcode readers, cyber criminals are getting more sophisticated and able to cause breaches in your company or your suppliers’ data.

To compound this, companies are also combining their data into centralized databases and systems. This makes a lot of sense from an operational standpoint, but causes further risks when these systems are breached.

According to a recent KPMG study, 60% of companies surveyed said that their supply chains were leaving them vulnerable to a cyber attack.

To combat these threats, organizations need to conduct thorough cyber-risk assessments and ensure that any suppliers in their chains do the same.

According to the National Institute of Standards and Technology,  “Cybersecurity in the supply chain cannot be viewed as an IT problem only. Cyber supply chain risks touch sourcing, vendor management, supply chain continuity and quality, transportation security and many other functions across the enterprise and require a coordinated effort to address.”

The Canadian Centre for Cyber Security provides this approach organizations can use to assess and mitigate risks within their supply chains. We’ll certainly be keeping an eye on developing solutions to mitigate cyber security risks in 2023.

5. Friend-shoring leading to onshoring

Coming off of three years of supply chain disruption and instability, an environment of uncertainty continues into 2023. Port congestion and high shipping rates are expected to continue well into the year. Food, energy, and technology supply chains are projected to be impacted by the ongoing Russia-Ukraine conflict and ongoing tensions between China, Taiwan and the U.S.

The long-term aspect of continued disruption is causing many organizations to start bringing manufacturing closer to home. Even prior to the 2019 COVID-related supply chain disruptions began, “near-shoring” and “friend-shoring” were gaining momentum as tactics to protect against the political and climate change disruptions already affecting global supply chains.

Friend-shoring will still be a popular strategy in 2023 bringing production out of riskier environments and into “friendlier” regions, reducing the risks offered by geopolitical instability.

However, risks of friend-shoring do include ESG-related compliance issues, so any new manufacturing location would have to be carefully vetted.

To reduce risks further, onshoring will be another popular option in 2023. Despite the higher costs of production that often come from bringing it onshore, reducing disruption risks seems to be a worthwhile endeavor for many companies and even countries. For example, the U.S. took a big step forward in onshoring crucial technology inputs by passing the CHIPS and Science Act which increased investment in semiconductor production on U.S. soil.

6. Manufacturing continues to leave China

According to the Economic Times,

“In 2023, companies will evaluate lead times and the cashflow impact of potential geopolitical conflicts and focus on building alternative options for raw material and component supply, to reduce an overdependence on individual countries, and distribute risk.”

Tensions and disruption from China, in particular, over the past few years, has led many Western companies to divert their supply chains away from the country to nearby neighbours that pose fewer risks.

In late 2022, the U.S. actioned their CHIPS and Science Act, to bolster the country’s domestic semiconductor capacity and  at the same time set some tough export controls in an effort to slow down China’s chip manufacturing industry. Chinese exports of high-tech products dropped 23.6% in November 2022.

China’s neighbours have been picking up a lot of this manufacturing business.

“Meanwhile, countries, like Vietnam, Singapore and Malaysia are grabbing markets China is ceding. Vietnamese exports, for example, rose 23% year-on-year to $185 billion over the first six months of 2022. Malaysia’s outward shipments increased 21% to $294.5 billion over the first 10 months of 2022.” – WITA.org 

China is also importing fewer commodities as their manufacturing export market falls.

China is likely to react to the U.S.’ export controls by putting up trade barriers of its own. All in all, it looks like 2023 will continue to be a volatile time for trade in this region as tensions remain high. We’ll be watching to see how things develop.

7. Continuing war in Ukraine

Last year at this time, we were looking ahead at what we hoped would be a return to a more stable trade environment with gradual easing of the disruptions caused by the COVID-19 pandemic. However, the Russian invasion of Ukraine in February 2022 saw a new wave of instability arrive in the form of sanctions, higher energy prices, and supply chain disruption on a global scale.

It’s hard to predict how the conflict will unfold in the year ahead, but one thing many global economists and trade experts agree on is continued disruption and knock-on effects including high inflation, commodity price surges, food shortages, and energy constraints exacerbating the probability of a global recession in 2023.

8. Global Renewable Market continues growth

Over the past year, costs of fossil fuels rose while renewable energy sources continued to become more affordable.

“The world is facing a simultaneous inflation crisis, national security crisis, and climate crisis, all caused by our dependence on high cost, insecure, polluting, fossil fuels with volatile prices,” says Professor Doyne Farmer, author of a recent study detailing the forecasted costs of the global energy system.

He states that research shows the costs of renewable energy continues to trend down and will become cheaper than fossil fuels in the near future across all industries.

BDO Global has provided its predictions for the Global Renewable Industry in 2023, including the following highlights:

The future of solar and wind power is bright – Solar capacity will continue to grow over the next several years—surpassing a terawatt of global solar power generation by 2023. Wind power will also continue to grow, with increased storage capabilities developed specifically for on and offshore wind, helping to improve the economics and productivity of such projects.

The energy convergence continues – Natural resources companies, from mining to oil and gas, will continue to invest in clean or renewable energy technology, including carbon capture, utilisation and sequestration—both to diversify their portfolios and reduce their corporate carbon footprints.

Cleantech investments soar –  Whether called cleantech or climate-tech, the regulatory, economic and scientific impetus for these technologies will see $600 billion dollars in global private investment by 2023.

9. Digitization continues to drive trade finance developments

Despite the adoption of blockchain technology by global financial institutions in recent years, there is room for further growth, according to Carl Wegner, CEO of Contour. Digitizing trade documents such as bills of lading has the potential to save billions of dollars in costs to organizations and improve efficiency and collaboration.

In place of cryptocurrencies, the “real economy” is set to make a resurgence after the crypto market took a two trillion dollar dive in 2022. Central banks in 114 countries are creating and are set to distribute their own digital currencies (CBDCs), both to transfer funds between commercial banks and for the use of the general public.

Digitalization in trade finance is continuing to develop and we will be watching to see how it impacts trade transactions and processes this year.

10. The future of work continues to be flexible and skills-focused

In the wake of the “great resignation,” labour shortages, the “quiet quitting” trend and a new generation moving into higher-level positions, the workplace continues to evolve in 2023.

Many offices are moving back to in-person work or hybrid models this year, but workers are still demanding flexibility and remote-work options. So, we can’t expect a “return to normal” or anything resembling the pre-pandemic model.

“New technologies seem set to usher in changes to the way workers are surveilled and monitored as they go about their daily activities, either remotely or in centralized workplace environments. Managing this balance between expectations of flexibility and a need for accountability will be a key challenge that employers and managers will face in the coming 12 months.” Bernard Marr, Forbes

So, companies will need to continue to balance flexibility— which has been shown to increase productivity and worker satisfaction— and things like security and tools to carry out reasonable tracking and surveillance for project management.

The hiring and recruiting process continues to evolve as well. More candidates available for remote-work opportunities, but in many industries, labour shortages persist this year.

Digital credentials are popping up with increasing regularity on digital CVs and LinkedIn profiles, and can be a useful tool for both hiring managers and job seekers, acting as a quick and easy way to verify skills and experience at a glance.

As recruiters increasingly shift to a “skills-first” hiring approach, digital credentials will continue to aid the process, making verifiable skills front and centre.

As every year comes to a close we like to take a moment to look back at the key trade issues people were talking about – and therefore, reading about. It was another year of changes and uncertainty, which is likely why two of our most-read articles were about risk.

But it was also a year for plodding ahead and looking to a brighter future. People were reading about business planning, investment and negotiations in a changed global business environment.

What was also heartening to see was the interest in articles about investing in your personal and career growth. Two of our most-read articles were about career success and upskilling.

So without further preamble – here are the top 10 most-read articles of 2022. Read on, enjoy, and let us know what you think most people will be reading about in the year ahead in the comments.

1. 10 Global trade trends we’ll be watching in 2022

10 Global trade trends we’ll be watching in 2022

2. The most common forms of foreign direct investment (FDI), including ownership-based investments and investments based on strategic alliances

The most common forms of foreign direct investment (FDI), including ownership-based investments and investments based on strategic alliances

3. A Guide to Preparing an International Business Plan

A Guide to Preparing an International Business Plan

4. Identify and mitigate the 4 types of financial risk: commercial risk, foreign currency risk, country risk, and bank risk

Identify and mitigate the 4 types of financial risk: commercial risk, foreign currency risk, country risk, and bank risk

5. The 11 political risks that could sink your imports and exports

The 11 political risks that could sink your imports and exports

6. What should be on every bill of lading

What should be on every bill of lading

7. 5 Canadian Trade Commissioners talk about their career success

5 Canadian Trade Commissioners talk about their career success

8. Pros and cons of using subcontracting as a market entry strategy

Pros and cons of using subcontracting as a market entry strategy

9. Top 7 reasons to become a CITP according to CITPs

Top 7 reasons to become a CITP according to CITPs

10. 10 tips for negotiations in a virtual meeting environment

10 tips for negotiations in a virtual meeting environment

Making the leap from domestic sales to an operation that’s doing business internationally comes with a new range of considerations. Not least of these would be to calculate business costs in any new markets.

Any business exploring a new international market needs to taking into consideration new costs such as those associated with international shipping, currency exchange, and methods of payment, many of which are unique to international business and come with associated risks.

Organizations trading abroad must understand the different factors that can affect their business costs. These factors are shown in the following image and explained below.

1. Transmission delays

Transmission delays, an often-overlooked cost of doing business abroad, can affect cash flow significantly. International shipments and the resulting payments are complex enough—delays can slow the transmission of funds from the paying country to the receiving country by a few days to several weeks. The cash budget must consider the possibility of technical or bureaucratic delays along the payment chain.

The delays may be the result of improperly completed documentation or foreign administrative procedures. New exporters may be able to plan for the types of delays experienced in their domestic business, but they can be unpleasantly surprised when international business delays are far longer than they expect.

2. Exchange controls

Resulting from the host government’s attempt to conserve its hard currency reserves, exchange controls can prevent or restrict the payment of funds by the trading parties in a country. Often enforced by a cumbersome and lengthy system of foreign currency authorization, these regulations impose more problems for capital repatriation transactions than for payment of arm’s-length invoices.

At times, export controls can result in all payments being stopped. This can have a devastating effect on a company’s cash flow, and it should be insured against if the amounts involved are relatively large.

Want to learn more about all aspects of how to manage business costs and cash flows, ensure payment and stay profitable long-term? Get started with the FITTskills International Trade Finance online course!

3. Exchange rate fluctuations

Foreign exchange rate (FX) fluctuations can reduce the value of the proceeds from a sale or increase the value of the funds needed to pay for a transaction. Unless planned for and controlled through risk management techniques, such fluctuations can seriously undermine expected cash flows, or surprisingly increase profit, hence the need for the margin on the contract.

4. Political risks

Political risks can also severely affect a company’s cash flow. For instance, the revocation of an export or import permit frustrates performance under an international trade transaction. In the meantime, the exporter may have already covered the costs of arranging for the export sales, purchased supplies, fixed business costs, paid salaries or prepared the products for shipment. Such a situation will have an obvious negative impact on cash flow.

5. Delayed collection of receivables

The slower collection of international accounts receivable can strain a company’s cash position. To avoid this, care must be taken to select appropriate payment terms for each foreign buyer, and to factor likely delays into the cash budget. If the receivables involved are substantial, the exporter should use export credit insurance or export receivables discounting facilities to avoid excess risk.

6. Technology

Trade finance and logistics providers are investing significantly in the enhancement of technology and related reporting capabilities, working to turn the provision of timely information and high transactional visibility into a significant element of their value proposition to importers and exporters on a global basis. Technology—from processing systems to web-accessed software and sophisticated reporting systems—is enabling the delivery of trade finance solutions across the life of a transaction, and doing so at an ever-faster pace, to keep up with the evolving needs and increasing expectations of importers and exporters.

The latest developments in trade finance include significant forays by leading global banks into areas that traditionally have not been the purview of trade bankers but are increasingly so today. Logistics, customs brokerage, supply chain finance and management are all information areas that are of critical value to importers and exporters.

While there are many risks inherent in international trade finance, there are also numerous methods of settlement in international trade available to exporters and importers to manage and mitigate risks.

In most developed countries, an organization can draw on a wealth of free or inexpensive expert opinions to assist with risk mitigation for financial transactions.

Major banks typically have large portfolios of international loan assets and maintain extensive international financial networks. To safeguard their interests and those of their customers, banks employ large staffs of political analysts and international economists, and are often willing to share their expert opinions and written reports.

Embassies and consulates abroad, as well as commercial officers, are valuable sources of political and economic risk information, and can refer their clients to local service providers abroad that can assist in obtaining more detailed information on commercial risks.

These resources can often provide information on a target country’s current business environment, as well as credit and business information about potential customers.

An organization should select the financial instruments that best address its needs and identified risks, as well as those that respond to the underlying dynamics of a commercial contract.

In general, importers and exporters must agree on terms and methods of payment based, in part, on the risks associated with planned transactions. Below you will find 4 methods of settlement in international trade you can use to reduce your risk.

Want to learn more about methods of settlement in international trade and other risk mitigation options? Check out the FITTskills International Trade Finance online course.

Risk Insurance

Businesses that engage in international trade can mitigate commercial risk and protect its interests through various forms of insurance, including:

• Political risk insurance
• Foreign accounts receivable insurance

Indeed, insurance options are available to address nearly every category of risk that suppliers and buyers could possibly encounter while conducting international commerce.

Political risk insurance (PRI) and accounts receivable insurance (ACI) are particularly common, and can be obtained from specialist private sector providers or, depending on the market, from public and private entities such as export credit agencies (ECAs).

Most ECAs were originally established as public sector entities that promoted exports by providing various financing and risk mitigation products and solutions.

In recent years, however, some of these organizations have been fully or partially privatized and have mandates that extend beyond their original public sector focus. In fact, just before the onset of the recent global financial crisis, many questioned the need for ECAs in international trade.

However, their critical value was demonstrated when the market collapsed and private sector providers retreated in panic. Variations on the ECA model continue to be numerous, with the approach and the scope of ECA-like organizations varying almost by country.

In any event, most ECAs continue to offer political risk insurance and foreign accounts receivable insurance, which are both important forms of coverage that can help exporters offset trade-related commercial risks. Some ECAs also offer medium-term buyer financing, which is another helpful tool for export promotion.

Risk Transfer

Many of the strategies mentioned in this section involve the transfer of risk from one party to another for a fee. Insurance, for example, transfers risk from an individual policyholder to a portfolio of clients managed by an insurer to disperse the risk among stakeholders whose premiums fund payouts against claims.

This usually occurs over time, as it is unlikely, under normal circumstances, that a material number of policyholders will present claims at the same time.

Another attribute of an organization that successfully mitigates and manages commercial risk includes the continual assessment of the relevant risks versus the associated costs of conducting global financial transactions.

For example, a very common loss suffered by exporters involves the commercial failure of the foreign importer, while, for importers, it is the failure or inability of the supplier to deliver the merchandise exactly as specified and when required. Sometimes, poor documentation will restrict or inhibit the export or import of merchandise.

Political and country risks account for a much smaller number of losses, but should also be considered when structuring a transaction.

The challenge for an organization trading internationally, whether importing or exporting, is to get to know and trust its foreign suppliers or importers and to balance this knowledge with the risk optimization tools available from a variety of sources.

An organization must then choose a form of settlement consistent with the assessed risk and its level of tolerance for that risk. The ongoing test will be to remain competitive—and commercially viable—while incorporating the risk of loss and the price of protection against such a loss, into the final price of the finished product.

Risk can also arise from factors beyond the good faith or control of the trading partners. If exchange controls are imposed by a government, the ability and willingness to pay is not sufficient to assure a successful conclusion to the transaction. The next section emphasizes the trade finance instruments which can be used to secure payment.

Learn about what impacts your cash flow and how to maximize it with this free FITTskills Lite resource. 

Open Account

Open account payments are essentially transfers of funds to the account of the exporter. Historically, open account payments have been used in trade between very stable and secure markets, such as the United States and Canada, or in intra-EU trade, and in cases where the trading relationship is established and trusted.

Open account payment terms are those under which the seller extends credit to the buyer, finances the whole sale and sends a standard invoice demanding payment within thirty to sixty days of receiving the goods.

In addition, terms are suitable for a very strong buyer-seller relationship with a creditworthy client. Much of the trade between Canada and the United States is done on an open account basis.

Trade on open account is also increasingly the preferred mode of payment across much of the globe.

This shift, driven by large global importers, introduces additional risk for exporters in that payment is affected after the delivery of goods and/or services, sometimes for as long as 90-120 days after delivery.

This method has some potential risks as the importer could, for example, become insolvent, or the country of import could experience political turmoil, preventing payment. In such cases, the exporter loses control, and usually title, to the goods and/or services and has limited recourse to recover payment.

From a documentation standpoint, aside from the commercial invoice that will be issued by the exporter in an open account transaction, this transaction normally also involves an ocean bill of lading (i.e. if ocean shipping was part of the agreed-upon terms and a shipping container of goods has been sent).

In these instances, the exporter will usually send all original copies of the ocean bill of lading (i.e. those issued by the shipper as receipt for the goods) to the buyer. The ocean bill of lading serves as the title to the goods so, upon receipt, the buyer (or the buyer’s designate) can present an original copy of the ocean bill of lading at the receiving port to get the shipment released.

Note that, in certain circumstances, it is possible for the exporter to authorize a release of the goods without an original copy of the ocean bill of lading. However, many exporters still rely on the courier to deliver original copies of the ocean bill of lading to the importer to prevent an unintended and unsecure release of the goods.

Payment in Advance

One of the methods of settlement in international trade not yet mentioned is payment in advance. In contrast, payment in advance (advance payment) is a payment that is made before receiving the good or service, so it presents the highest risk to the importer (i.e. given that the exporter could easily receive the funds and not carry through with the promised shipment).

Exporters sometimes require advance payments by importers as protection against non-payment or to purchase supplies to fulfill the order. Higher advance payments may be required for specialized products as a hedge against buyer default when it may be more difficult or impossible to sell the products to a another buyer.

If an importer wanted to have a pre-shipment inspection when paying cash in advance, he/she could hire a 3rd-Party Inspection service to visit the manufacturer and file an inspection report.

However, the cost of such an inspection would also add to the investment being made by the importer. So the credibility of the exporter in this sort of a scenario would typically have to be very high.

Even with the best intentions and good faith, factors such as political turmoil and other unforeseen events could prevent a willing and well-intentioned exporter from completing a shipment as promised.

As a result, payment in advance is rarely used for transactions that are structured on a recurring basis. However, advance payment is frequently used when the reputation of the exporter is well-established and the importer sees little risk in an advance payment.

Advance payment establishes the importer’s credibility when the exporter does not have sufficient confidence in the importer. In these situations, the initial payment in advance transaction is used to gain the confidence of the exporter, and it is often accompanied by negotiations that are intended to lead to better payment terms on subsequent transactions, such as open account, as described above, or documentary collections.

Major banks, such as Royal Bank of Canada, Industrial and Commercial Bank of China, BNP Paribas and HSBC, have large portfolios of international loan assets and maintain extensive international financial networks. To safeguard their interests and those of their customers, banks employ large staff of political analysts and international economists, and are often willing to share their expert opinions and written reports.

Embassies and consulates abroad, as well as commercial officers, are valuable sources of political, economic and commercial risk information. These resources can often provide information on a target country’s current business environment, as well as credit and business information about potential customers.

Solutions available to mitigate some of the most common commercial risks to ensure successful international transactions include those represented in the figure below.

These options are explored in the following sections with guidelines for both the importer and exporter.

Want to learn more about payment, risk mitigation, financing, and the flow of goods and services. Check out the International Trade Finance FITTskills online course.

1. International Trade Finance Instruments

Trade finance instruments have evolved slowly since their introduction to the market, some as early as several hundred years ago. They have been gradually  adapted to the changing needs of organizations trading internationally. In more recent years, several factors have contributed to a heightened need for traditional banking instruments to adapt while still providing commercial parties with protection, security and risk mitigation. These factors include:

• Rapidly changing role of technology
• Electronic transmission of shipping and title documents
• Acceptance of electronic transfer of title
• Large-scale movement toward trade on open account.

An organization should select the financial instruments that best address its needs and identified risks, as well as those that respond to the underlying dynamics of a commercial contract. In general, importers and exporters must agree on terms and methods of payment based, in part, on the risks associated with planned transactions.

In low-risk transactions, such as those between parties with established and trusted commercial relationships, organizations often use documentary collections. Open account terms are similarly well suited for established relationships, although companies that use these instruments must pay more attention to risk mitigation now than in the past. Documentary letters of credit offer protection to both importers and exporters. Confirmed letters of credit give exporters even more protection and, as such, are used effectively in the most high-risk markets in the world.

2. Risk Insurance

Businesses that engage in international trade can mitigate commercial risk and protect its interests through various forms of insurance, including:

• Cargo insurance
• Political risk insurance
• Foreign accounts receivable insurance

Indeed, insurance options are available to address nearly every category of risk that suppliers and buyers could possibly encounter while conducting international commerce.

Political risk insurance (PRI) and accounts receivable insurance (ACI) are particularly common, and can be obtained from specialist private sector providers or, depending on the market, from public and private entities such as export credit agencies (ECAs).

Established in post-war Europe as part of a broad reconstruction strategy, ECAs were originally public sector entities that promoted exports by providing various financing and risk mitigation products and solutions.

In recent years, however, many of these organizations have been fully or partially privatized and now have mandates that extend beyond their original public sector focus. In fact, just before the onset of the recent global financial crisis, many questioned the need for ECAs in international trade.

However, their critical value was demonstrated when the market collapsed and private sector providers retreated in panic. Variations on the ECA model continue to be numerous, with the approach and the scope of ECA-like organizations varying almost by country. Many ECAs now offer political risk insurance and foreign accounts receivable insurance, which are both important forms of coverage that can help exporters offset trade-related commercial risks. Unit 3 provides further details on how organizations can use ECAs to mitigate commercial risk.

3. International Financial Institutions and Aid Agencies

International financial institutions (IFIs), such as the World Bank’s International Finance Corporation, and regional development banks offer financing and risk mitigation programs that facilitate the conduct of international trade by engaging local banks in international trade finance and enhancing trade flows.

Some examples of such regional development banks include:

• Asian Development Bank
• European Bank for Reconstruction and Development
• Inter-American Development Bank
• International Islamic Trade Finance Corporation

Several IFIs have developed programs specifically to address the risk profile of their local banks, providing guarantees so international banks are more likely to extend confirmations to the documentary letters of credit issued by local banks. Without these guarantees, the risk profile of IFI-affiliated local banks would be such that international banks would either refuse requested confirmations outright, or charge high fees for them.

Many international aid agencies and development finance institutions also provide financing or risk mitigation solutions. These solutions foster increased trade flows with higher-risk developing and emerging markets, which helps encourage development and reduce poverty in these markets.