The results of a trade finance survey by Clyde & Co, in association with Commodities Now Magazine
With the world's population predicted by the World Trade Organisation (WTO) to rise to nine billion by 2050, international demand for commodities is likely to significantly increase. Access to funding to support commodity transactions is essential to meet this increased flow.
It is concerning that since the 2008 financial crisis, there has been a dramatic decline in the availability of trade finance. In fact, bank led trade finance has roughly halved from an estimated USD 14 trillion at its peak to near USD 7 trillion today.
Post financial crisis, with banks less focused on risk and trust at a premium – where will the funds come from? How does the commodity trade finance market need to evolve?
We posed these questions to the commodities industry. Working with Commodities Now, we sought the views of finance providers, commodity traders and commodity producers involved in the international trade of multiple commodities.
We asked respondents about their trade finance challenges, in particular the availability of appropriate finance and the willingness of lenders to lend. We also asked what kinds of finance the market was keen to have more readily available.
The results suggest that:
- Trade finance is more difficult to access than ten years ago, particularly for smaller producers and traders
- There is a mix of factors which have led to market contraction including a reduction in banks' willingness to lend, greater regulation and costs
- No single funding solution dominates. Instead, most traders rely on a patchwork of solutions to meet their funding needs
- Many in the market are not familiar with the LMA suite of trade finance documentation
- A large proportion of traders are exploring alternative finance solutions
- There is a strong sense that closer, more responsive and more trade-related club relationships are required
Our report discusses the survey results further, along with the factors behind these findings. We pose recommendations for how we return to an environment where there is sufficient finance to facilitate the trade required to meet the needs of the world's growing population.
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