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Dyanne Carenza: Welcome to Market Points. I'm Dyanne Carenza, Managing Director, Global Trade and Working Capital Solutions at Scotiabank. Organizations across the Americas are navigating an increasingly complex trade environment. On this episode, we'll be discussing the global trade landscape, how companies are meeting this new complexity head on, and the risks and opportunities we see for the future.
Joining me on the episode is Matthew Parker-Jones, Senior Vice President, International Commercial Banking here at Scotiabank. Matt, so happy you could join us.
Matthew Parker-Jones: Great to be here, Dyanne, and what an amazing topic and so timely with everything that's going on in the world right now. So I'm excited to dive into this together. I know we've talked a lot about this offline together, lot to dive into, a lot to unpack. So looking forward to the conversation.
DC: Indeed, very timely. The news is just continuous and if not daily, hourly, some days. So I thought we'd start off by framing the big picture of what's changing and what really is the trade environment today.
So if we look at the macro picture, we can see the globalization. There's a lot of shifts in changes in that environment. Globalization as a concept dates from the end of the second World War supply chains were being outsourced and we were redefining a truly global economy. Originally it was all about cost efficiencies and working capital optimization. And as time went on, global supply chains grew in terms of complexity and spanning geographies, regulatory regimes, and tax environments.
We've seen shifts in the past and we have to kind of remember those. So we had things like, you know, up until the seventies, the currency of trade was gold, right? And then it switched to U.S. dollar. And when you think of the seventies, well for some of us, that's not that long ago.
And then we also had, when China became part of the World Trade Organization, that too caused quite a number of ripples through the global economic context.
So, changes have happened, and through those changes we have come out stronger and more resilient. But the shift we're seeing now is there seems to be an inherent, perhaps it's the velocity and or the continued volatility, because what we're hearing from businesses is they've never seen change like this before in the past.
MPJ: I think that's a, great point Dyanne. And I think, these things feel like they happen all at once sometimes, but there's a big buildup to get to the point that we're seeing right now. This is not a phenomenon and the trade tensions that we're seeing right now are not a phenomenon in the last six months, but rather the accumulation of a lot of changes over the last probably five to 10 years.
And let me kind of highlight a few of them that we've seen. First and foremost, obviously there was kind of the renegotiation of NAFTA to USMCA under the first Trump presidency and kind of re-litigation of kind of those trade parameters. And I think a recognition that trade agreements to a degree had left portions of the population behind in terms of economic benefit and kind of the restructuring, revisiting of what it meant to have these trade agreements and who are the beneficiaries of it.
You kind of build on top of that and you have COVID. And COVID really caught a lot of businesses, a lot of governments, a lot of global economies, and even us as consumers, a little bit off guard in terms of just how dependent we were on single market providers for goods and services, for the things we use in our daily lives, whether that be things like toilet paper or toothpaste.
And then you fast forward post COVID into the rise of AI and you see one of the key inputs for AI being microchips, processors, and kind of the dependency again, and the concentration in a small number of providers, particularly from countries like Taiwan or China in terms of being manufacturers of those critical component parts.
So you've got a lot of compounding factors in there that have built the conditions by which there is this review, so to speak around the merits of globalization and you're slowly seeing this move to what I would call regionalization where no longer you have these big sprawling global supply chains, but you're having companies and governments now look at their supply relationships moving away from what I'll call true offshore import export type models to more onshore models.
And that is really reshaping global trading relationships and it's causing countries and companies to revisit who those trading partners are, set up new trading relationships and, and really tackle problems that they haven't had to deal with in the last 30, 40, 50 years.
DC: One of the additional elements that I'll add on to all the various external factors you referenced is some of the concerns around climate change, right, and the environmental impact.
So also looking at suppliers, looking at regions, looking at a more focused strategy to help mitigate some of those risks as well. And as an example, are the French champagne houses who saw this coming and in the seventies Taittinger moved and started planting not their entire production, but started planting champagne grapes in the Kent region of the UK. So there are, to your point, this is, it's a building, it's a stack upon stack of a layer upon layer of changes in the dynamic of the supply chains.
MPJ: Sticking with that food and beverage theme we're seeing that with some of our clients today, and I think of Canadian grocers who historically were sourcing oranges from State of Florida, Florida being a major production center for oranges, orange juice, and the sort who are now looking at their supply chain relationships, looking for alternative sources for oranges. We've had Canadian grocers now who are sourcing oranges from Mexico, from Morocco, other parts of Latin America, looking to shield themselves and mitigate geopolitical risk from their supply chains.
But just even more broadly than that, this theme at the CEO and CFO table around how do I mitigate supply chain shocks? How do I make sure that my supply chains are diversified, resilient, that I've got sufficient counterparties in the mix, that if there's some sort of shock that happens in one corridor, that it doesn't put my overall business model at risk.
And I think for a long period of time, companies were able to operate with single export partners, single import partners. Because there was this longstanding view that globalization was here to stay, that these trade agreements were rock solid and you didn't have these consistent shocks that they're faced with.
I think that world has changed. We're likely not going back, and it's become now very, very important to ensure that diversification, mitigation, using trade finance tools as a shield and as an insurance policy effectively on trade flows has really become a key part of strategy in terms of business continuity and proper risk management from the CFO's office.
DC: That's also what we're hearing from clients. They're looking for their banking partners and others to help them expand their networks of suppliers, but in that trusted way with good advice and counsel and good solutions that you reference.
It's all about that streamlining their execution and how they think through it as they're diversifying, as you mentioned that, going from a single source to multiple sourcing across different geographies. What's interesting, and along with the different geographies, you have different currencies to think about. So all of that just implies additional risks that have to be considered and obviously looking for solutions to mitigate those risks.
A couple of clients that we've been chatting with recently, for them the diversification they've been on this path and this journey for years. It's just part of their business model. This one client in the technology space as it relates to energy sourcing is Nextracker. And they have been looking for clients, but also their supply chain. So they really have it on both sides, suppliers and clients. Right across a diverse set of countries, and interestingly, for the most part, and where their growth opportunities are, fits in seamlessly with our geographic footprint.
So, it's been a great opportunity for us to be able to support a business that is growing and in these different markets and with our team of experts offering these solutions on the ground, experience on the ground, and understanding the market conditions and the regulatory framework, et cetera, being able to offer a fulsome solution that's easy for them to integrate.
MPJ: I think that's exactly right, Dyanne. I think like that complexity management is a real important value proposition that we bring to our clients. The world's already highly complex and now you layer in that companies are having to diversify their supply chains, diversify their export markets, manage multiple currencies, manage new counterparties in new countries with new geopolitical risk. That is a lot of things to tackle.
And for CFOs and CEOs who are having to navigate these things that may not come intuitively. They've got a business to run. They're not necessarily in the business of tracking the ebbs and flows of FX and, you know, different countries around the world. But this is where we can step in as a bank.
And this is where, for me, this is what gets me excited is our ability to advise our clients in terms of these changes, to make connections for them into local markets where they may not have operated before. And to really help them change, transform, de-risk their business and set them up for success.
And for me that there's nothing more rewarding than sitting down with a client like Nextracker, where we can take a very real problem for them and bring them a solution that serves as a multiplier and an enabler for them to do what they do best, which is serve their end clients to provide great technology solutions.
DC: Bang on, on that point, the CFO and treasury team from another client invited us in and we brought in the full strength of global transaction banking team of specialists at Scotiabank, did a full day whiteboarding session to help them through their strategy in terms of, okay, we recognize we're looking at different options, help us understand the risks and how we can mitigate them. They were going from a single country focus of suppliers moving to a three country and Canada, U.S. and Mexico, and they wanted solutions that were not only the capabilities in terms of working capital optimization and currency risk, and managing those ebbs and flows, but also something that was simple and efficient.
Their treasury team is lean, you know, they wanted one set of documentation, something as simple as that, but they wanted one set of documents managing one program, and we were able to bring all together, from the trade and working capital perspective, one program that was efficient and that they could manage with their team, just that one single team, but that span across those three markets. And they were really impressed and we were one of the few that could really bring all of that together, both from the trade and working capital perspective, as well as the FX and the treasury, other treasury tools to complement that as well.
MPJ: It's a such an important point, Dyanne. Imagine the treasury, I go back to my grocery example around, around oranges, and if you're a Canadian grocer and you have always dealt with the same supplier of oranges from state of Florida and all of a sudden you can't access those oranges, or you can't access those oranges at the same prices as you used to. And you're being asked now to go and source oranges from Mexico or from Morocco or from somewhere else in the world. That can be a very, very daunting experience. And treasury teams are lean. They've always been lean, they're getting leaner.
More and more is being thrown to the treasurer's office in terms of technology and innovation and so forth. It can be a very daunting thing, and I think this is where we as a bank have an opportunity to step up and step in and be that bridge into those markets and be that source of trust. Connect them with local requirements, be that guide, and kind of take out some of that uncertainty and apprehension of getting into those markets.
And it's amazing when you're sitting down with clients and you hear kind of the initial concerns that they have about doing business in a different country that they're not used to. But then you sit down with them and you spend the time, you walk them through what it will take, the documentation, like you said, making it simple. It's amazing the relief you see from clients' eyes, and also the confidence that it builds on our clients as well to be able to do business in a different way. And I think that's important for our clients to feel that level of confidence when they're doing things.
I like to tell clients that you have to have a plan. It doesn't matter where you are in the plan. You could have the most sophisticated plan. You could be thinking years ahead on diversification and trade finance and how you're gonna mitigate supply chain shocks. Or you could be just starting. But wherever you are on that journey or that continuum, it's important that you have a plan, because otherwise you are susceptible to these shocks.
Rule number one is wherever you are in your journey, no matter how sophisticated you are, I tell clients, sit down with your banker. Sit down with your trade finance experts. Come up with a plan. Benchmark yourself as to where you are and where you wanna be. And be realistic in how long it's gonna take you to get to where you want to be. But have a plan and start working towards that plan. Because otherwise you're just leaving yourself susceptible to the next shock and the next shock after that.
DC: You're right, there's nothing like having a plan and you're, and that notion of wherever you are in the journey and having those, being agile as well.
I think, I mean, we don't know what's gonna happen in three and five months. So being able to be adaptable, agile, to build that out and seeing those shifts as we are having those conversations with the clients is, I've noticed that it's no longer just about the cost, right?
They're looking for, as it relates specifically to supply chains obviously, they were in the past, it was just-in-time delivery. It was all about that, okay, lowest cost provider, let's be the most efficient. Well, now they're willing to pay a little bit more. There's a premium for stability and resiliency and that notion of, okay, let's grow together and let's build the relationship over time.
There's also that element of the partnering and building out of that network. So obviously, Scotiabank as the partner, we, bring a great geographic footprint, we bring global platforms from the trade and working capital space, so whether the client is working with us in Canada, in Mexico, or in Chile, it's the same platform and it's the same interface for them, the same experience. They're also looking for that, sense of stability and resiliency as well. Again, going back to being the lean treasury team, this just makes it all that much more adaptable for them to incorporate into their daily activities.
MPJ: You talk about the changing spectrum for trade finance, and you think about companies revisiting who their trading partners are, where they're importing goods from or exporting goods from too. And look no further than the changes that have happened here in North America over the last five to seven years.
You go back seven years ago, the United States' largest trading partners were China, Canada, and distant down that order was Mexico. And since COVID with a rejigging of supply chain and manufacturing hubs. Mexico has shot up to being the United States's largest trading partner, and that's not by accident.
That's because of companies deliberately looking at their supply chains, seeing what happened in COVID, where it was difficult to get shipping containers from China to the United States and the supply chain shocks that occurred as a result, and thinking well, right in our backyard, in Mexico, we've got a massive skilled labor force.
We've got a great advanced manufacturing base where we can produce cars, we can produce electronics, microchips, and why are we putting so much risk into the system by having to ship goods around the world with not only the risks of shocks, the risks of the environmental impact that that creates, shipping those goods around the world, but also just the immediate access to a friendly neighbour, and an allied country, you know, just south of the border where we can import and export goods from.
So that gets me very excited, it gets me very excited, Canada, U.S., Mexico, one of the largest trade corridors in the world, $1.7 trillion of trade across those three countries. But it doesn't stop there. You look a little bit further south than Mexico into Latin America, and you've got these great mining hubs in Chile and Peru. Peru as well for great agricultural base, right, with great produce, right? We're shipping increasingly more and more produce from Peru to Canada as Canadian grocers, again, diversify their supply chains. You've got Colombia's digital economy. You've got great produce hubs in the Caribbean.
So, Latin America is obviously very diverse, not homogeneous in any way, and you've got these great, great markets across the Americas. And I think what gets me really excited as a Scotiabanker supporting our clients is the ability to bring this really spectacular Pan-American import export market to life for Canadian companies, for Mexican companies, and for companies all across Latin America, into and out of the North American corridor.
So it's, it's a really exciting time. I think there's these major changes happening in terms of trade, how we're thinking about trade diversification, risk mitigation strategies, nearshoring, and all of these trends in my mind speak to an increasingly integrated regional supply chain across the North American corridor and into Latin America.
And Scotiabank is uniquely positioned to do so given our presence in. Canada, the us, Mexico, and into Latin America. That puts us at pole position to be able to help clients navigate those changes, provide expert advice, local knowledge, and help them connect their supply chains into those networks.
DC: So Matt, shifts, new corridors, new relationships, and new markets will require more agile strategy, preparation, and clearly a solid banking partner. So the call to action then is really review your suppliers, your supply chain, and your overall trade finance plan, and do it now.
MPJ: There's only one constant in the universe and that's change. And companies need to be prepared to confront that change head on. And there are a few time-tested strategies to help do so. Have a mitigation plan. Diversify your trading partners, work with your partner bank institution on a plan.
These are proven strategies to navigate complex times of change.
DC: That's great, Matt. Thank you very much for being here today and look forward to doing this again.
MPJ: It's great being here, Dyanne. Appreciate the conversation.
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