The future of trade and trade financing could soon be almost unrecognisable, according to Barry Fletcher, Vice President & General Manager of American Express International Payments JAPA.
At the recent American Express Inside Edge conference, Fletcher presented a wide-ranging view on foreign exchange markets, the future of cross-border payments, and China's bid to build a road to Europe. He also explained how crewless and uncaptained ships may soon ply the world's oceans.
Over the past year, Fletcher has analysed the Australian dollar, euro, Japanese yen and the volatile movement of the US dollar.
As he told the audience, the US dollar has been hit by several ructions in the past 12 months, of which CFOs should be aware. But US President Donald Trump's anti-trade pact plans could possibly have the biggest impact on the US dollar in the near future.
The Trans-Pacific Partnership - a Pacific free trade agreement - is now defunct and Trump has put the North America Free Trade Agreement on notice.
Trump has also said he considers the current European trade deals among “the worst deals ever" and has signalled his intentions to pull out of the World Trade Organisation.
“He's very much about bringing production and manufacturing back within the US, which is not a very easy thing to do," says Fletcher.
“Anything is possible, but if you're shipping goods to the US or you have volume going into the US, keep an eye on what he's talking about from a tariff or a border tax point of view," Fletcher warns the CFO community.
Back to Asia
According to Fletcher, China's trading strength has increased in the past year and its exports showed a marked rise in June.
“Imports are even stronger, up 17 per cent for that month," Fletcher says. “That has generated a trade surplus of just $43 billion for June. Certainly, there is a lot of volume coming through."
One of the most interesting developments for China is the One Belt, One Road project, first conceived in 2013. It now goes by various names including the New Silk Road and the Iron Silk Road.
Fletcher believes it is one of the most ambitious trade projects in history. At its core, is the creation of an overland rail network from China to the heart of Europe, following three traditional routes.
The top section of the network is where the Trans-Siberian Railway runs today. The middle section follows the Old Silk Road and the bottom section passes through India, Pakistan and Iran. From there it opens links to the Arabian Peninsula before continuing into Turkey where it opens a gateway into Europe. The plan is to have at least one rail line running trains at 300 kilometres an hour.
“It will cut the movement of finished goods from China to the UK from 12 days to two days," Fletcher says. “If they're going to achieve that, it's better than anything they can achieve from any form of ocean delivery."
At the conference Fletcher also spoke about developments in artificial intelligence and how these might affect food trading. For instance, a food manufacturer can now collect weather data from all its sourcing farms around the world. The manufacturer could potentially know the price of those goods, how much it will cost to get the goods to its factory, what future orders it has in place and where the production line sits from a capacity point of view.
“AI will be able to fire out orders to those farms to get the best outcome. Raw ingredients will turn up at the manufacturer's factory without anyone in finance raising an invoice."
Fletcher also talked about the advantages of blockchain technology, which he says is now being tested by many banks. This uses a distributed ledger, where transactions are no longer centralised, but shared between trading entities.
“This gives you a very high level of security. If someone hacks into one of those nodes, they cannot create or edit a new transaction because the entire network has to agree on each transaction based on shared cryptography rules that make the transaction legitimate."
Lastly, Fletcher says the future of trade could belong to 'smart ships', which could sail the oceans remotely, packed with goods and capable of autonomously communicating to other ships and ports.
“It's almost like a smart phone but it's giant and it floats," Fletcher says. Rolls Royce and other companies like Hyundai are working on totally autonomous ships, he says, which should be rolled out in about ten years' time.
“Rolls Royce has already built an onshore command centre where a captain will be able to sit watching a screen, managing multiple ships in real time around the world."
However, to achieve this future Fletcher predicts there may be serious hurdles to overcome, particularly in Australia, where trade unions still have some sway over how the docks operate and which personnel load and unload ships.
“I expect when that ship gets close to a port, someone's going to need to helicopter out a pilot to bring it into the harbour. But who knows? Maybe they'll drop a captain onto the boat from a giant drone," he says.
On a global scale, the tide of change in trade and trade finance may bring both challenges and opportunities for CFOs to navigate. Watching the horizon for new technologies may assist in planning future supply and distribution chains.
- International trade is in flux with deals such as NAFTA now uncertain.
- The Chinese economy has performed better than expected over the past year.
- New technologies such as blockchain may give finance departments heightened security around transactions.