Latest / The Loadstar / The Loadstar Podcast X DP World Trade Finance: Re-shaping how trade is funded

Transcript

The Loadstar Podcast X DP World Trade Finance: Re-shaping how trade is funded · The Loadstar

• 0:03
  Speaker A: Hello, you are listening to the Lodestar Podcast. I'm your host, Charlotte Goldstone. Global trade depends on one critical ingredient, access to capital. Yet for millions of businesses, particularly in emerging markets, financing international trade remains complex, slow and often out of reach. So today on the Lodestar podcast, we are joined by someone working to change that. Sinen Ozkan, Senior Executive Officer and board director of DP World Trade Finance. Since its launch in 2021, DP World Trade Finance has mobilised over $1 billion in working capital and partnered with more than 30 financial institutions. And it's reshaped how trade is funded by embedding finance directly into DP World's global ports and logistics ecosystem. So if you're confused also by what that means, then stick around because we will be getting into that in a lot more detail. I'll be talking to Sinan about all of this, including how data and visibility are used in trade finance, the benefits to SMEs, how DP World is mitigating the risks involved, and where the future of trade finance is heading, plus much, much more. We clearly have a lot to discuss today, so I'm going to stop talking and let's get straight into the episode. Sina, welcome to the Lodestar podcast. It is great to have you here. Thank you so much for joining me.
• 1:31
  Speaker B: My pleasure. Shahra, thank you so much for having me.
• 1:33
  Speaker A: Before we jump into everything that DP World Trade Finance is doing for global trade and for SMEs, it would be great if you could give the audience a bit of information about you. So like your professional background and your role at DP World.
• 1:46
  Speaker B: I would love that. So I'm an ex banker, so I started my career as as banker but throughout the years I've been to different parts of the world and different kinds of institutions. So I started as banker out of Istanbul and then moved to us a little bit banking, M&As and new charters, then little bit treasury and structured finance in out of Italy, then moved back to Istanbul for a multinational corporate to run their trade finance desk for the region for Middle East, Central Asia, Africa. With that institution I moved to Asia Pacific, lived in Singapore, Thailand as head of trade Finance and financial services out of Asia and then moved back to Istanbul to become the first overseas representative of the UK Export Finance, the British government's export credit agency. At some time in Istanbul, covering Europe, Middle East, North Africa and Central Asia. Then I moved to UAE to Dubai. In the last 10 years in Dubai, basically I worked for another major shipping line to Set up the trade finance unit out of Middle east and then covering Indian subcontinent Africa as well. And last five years with DP World Trick Finance to basically put all together what I've learned throughout the years, the challenges that the industry faced and try to come up with something innovative that hasn't been done before at a global scale. Obviously quite a lot of large shoes to fit in, but it has been a very, very challenging but rewarding journey altogether.
• 3:18
  Speaker A: Wow, that is an incredibly diverse range of experience you've got. I'm jealous about all the nice countries you've lived in. I believe you've been in this kind of industry for 25 years. So across this very long time that you've been in banking, export, credit, logistics and in trade finance, what experience do you think has most shaped how you think about trade financing today?
• 3:41
  Speaker B: Two things come kind of prevailing, if you like. One is there have been always barriers in front of global trade, infrastructure being the biggest that deep world is trying to address altogether to offer supply chain solutions from factory floor to customer door. The second one is another very, very big one is access to capital. So the trade finance gap which keeps enlarging so these two things as the barriers came so prevailing, it's. You feel like you're facing a mountain. Having said that, those are the steps towards success. I've seen the successes throughout this journey and how you can actually enable the trade altogether. When I say trade finance gap, it is basically the trade that does not happen due to lack of finance and how you can unlock that by thinking differently. Not necessarily, you know, rebuilding the whole world or rocket science or something like that, but literally thinking differently, putting yourself in the shoes of a small exporter, say out of India and a mid sized buyer, say out of UAE or Brazil or elsewhere. And literally taking step by step every challenge they face throughout that transaction journey and tackling that in a way it becomes highly mitigated risk, calculatable risk that the banks or the lenders can take a bet on basically.
• 5:06
  Speaker A: So I have been in logistics now for about two years, so I know a bit about trade. But I'm not going to sit here and pretend to be an expert on finance. So could you explain in a bit more detail what the trade finance gap is and why it is a cause for concern? I believe you kind of gave a brief description, um, but if you could kind of go into a bit more detail about, about what it actually means.
• 5:27
  Speaker B: Actually trade finance is something so simple, goes back centuries and come back to today, you go to a supermarket and buy A chocolate you just pay upfront over there. You can pay cash or credit card and they give you the chocolate. But when you deal in the global trade, massive volumes, you have 50 containers of cars going from the US to say, Saudi Arabia. There's a buyer and a seller. You can't meet in the middle of the ocean and hand over millions of dollars in suitcases and take the 50 containers in your pocket. Right. So that's where the whole issue lies. So you have a buyer, you have a seller and they have to exchange goods and the money. But the money flow and the goods flow are separate. That's the cause of the trade finance being born today. Basically I have a buyer and the seller mitigate the risk between one another and how they buy goods to produce and how they pay for goods that they purchase. That's the whole gist of it. And that lack of trust in the global trade and the flow of money and goods being separate causes a huge risk and a barrier among the parties. So due to lack of the collaterals or the risk free mechanisms or the mitigated mechanisms, significant amount of trade doesn't happen today. When you are a large corporate, you're obviously have an easier access to capital. When you're a small company, you don't have an unlimited collateral to give to a bank because the bank will not give you loan just because you're a good person. They need to have certain collateral not because they are evil, but they also have to mitigate their risk. But as a small company, you don't have unlimited collateral, you don't have thousands of acres of land to give us collateral. Right. Otherwise you would have become already a much bigger company. So that collateral trap causes the company's limitation access to capital and that small small trades become a huge pile, which was $1.4 trillion eight years ago. Wow. In eight years it grew 80%. Today's $2.5 trillion. So it obviously significantly grew by 80% in eight years. So it has been widening. So access to capital became more and more difficult. Having said that, it has been stable in the last two years or so, but still not narrowing down. So it's still a huge amount of trade that doesn't happen due to lack of finance. And that trade is very important for economies. It helps increase the GTPs, it helps creating more employment, it helps increasing prosperity. And that, that's the trade that we are trying to target, right?
• 8:17
  Speaker A: Well, yeah. That brings me very nicely onto my next topic because you've given a great explanation of what the trade finance Gap is and why it's a problem. But I really want to talk about DP World's involvement in trade finance and understand what it is you do. So before we get into all the nitty gritty details, can you give me an overview of what it is DP World trade finance is all about and how it started?
• 8:38
  Speaker B: Absolutely. I'll tell you about quickly DP World altogether, how it ties to trade finance so that it makes more sense. So historically we have been a port operator, started out of Dubai years ago and grew as a major port operator across the globe. Today handling ports and terminals infrastructure in more than 50 countries, close to 90 ports from Australia to Canada, from Brazil to Vietnam, all around the world. About seven, eight years ago we started this transformation journey to go beyond the port. Our clients have been historically shipping lines at the time. Today it is becoming also predominantly what we call cargo owners, pcos, beneficial cargo. So the cargo owners are the companies who actually own manufacture, trade, retail, wholesale, the cargo. So why did we do that? Because one is the obviously the risk heavy environment in the global trade, but also those steps and layers creating so many of inefficiencies, increasing the cost of trade significantly. Today, 15% of the value of the cargo, of the goods are of hidden cost, mainly due to manual processes. So we try to tackle that end to end going beyond the ports, offering forwarding, warehousing, contract logistics and even shipping altogether basically. So that helped us to become an end to end supply chain solutions provider which can consolidate and minimize the cost for the cargo owners, for the companies, for the trade altogether. So it meant we do pretty much everything else beyond the port 2 in the entire supply chain. And when we ask our clients how else can we help you? So we do your warehousing with your contract logistics, we do your forwarding, we handle our cargo at the port, all those what else can we do to make trade flow? And other thing that came consistently was access to capital. So the trade finance. This is how we evolved from being a port operator to an end to end supply chain solutions provider wherein our clients needed access to finance more. That's why trade finance came into picture.
• 10:59
  Speaker A: And you have a very specific advantage in your approach to financing trade. This is through embedding trade finance solutions within DP World's port and logistics ecosyste. So could you explain a bit more in detail about what exactly this entails and what the benefits are today?
• 11:16
  Speaker B: The global trade has a lot of intermediaries, lack of transparency, collateral heavy environment, information asymmetry that creates a lot of you know, it's like a black box to an extent for a bank altogether, if you like. So the banks have been relying on paper, paper that shows that the goods have been shipped or not shipped or invoice attached to it. So paper is something that can be fake, forged, lost. So that increases the risks immensely in trade finance for a bank, because there's a cargo, you're receiving a paper, it's cargo moving from US to Saudi Arabia, but it's a paper. You haven't really seen actual container. Right. It's the basic principles. So you don't see the actual trade as a bank. That's what we are targeting. We are not relying on paper. We are the ones who is carrying the cargo. We are the ones who are seeing that container and what's inside the container, if you want to. Even when we don't carry, we still have access to more than 90% of the global container movements across the globe on a real time basis. So we are able to track and trace the cargo. So that information asymmetry altogether gets significantly removed from the equation that helps us to better mitigate the risk and offer access to capital.
• 12:44
  Speaker A: You mentioned a few times these kind of buzzwords like the digital side of things. So there's data visibility, you've got this control over cargo. And this is central to DP World's trade financing strategy because as you mentioned, you can directly link finance to the physical movement of goods across your port terminals and logistics operations. So does this real time logistics data perhaps change credit decisions and enable financing that might not have otherwise happened? Does it mitigate risk in any way?
• 13:14
  Speaker B: Absolutely. Look, majority of the defaults happen in trade finance due to foreign collusion. So if you are able to provide transparency visibility that significantly helps mitigate the risks in trade finance altogether. It is already part of our credit decisioning.
• 13:32
  Speaker A: I mean, the numbers speak for themselves. Since it's Launched less than five years ago, DP World Trade Finance has already partnered with 32 financial institutions and also mobilized over $1 billion in trade finance. So what has been the key, in your opinion to getting banks comfortable with collaborating on a platform based model?
• 13:54
  Speaker B: Absolutely. By the way, that number is now $1.6 billion. So. Oh wow, just keep increasing. Yeah. So every month we grow in different countries as well. So we exp footprint following deep world infrastructure. And your question was around how you get banks comfortable? Yeah. Okay. A number of things. One, we literally embedded logistics into trade finance. So all those milestones in a transport event, we are able to track and trace. We are able to carry, we're able to collateralize. We offered them technology tools to quickly consume that data, but we went beyond that. So we put our money where our mouth is. So we also offer trade finance loans from our own balance sheet.
• 14:43
  Speaker A: Right.
• 14:43
  Speaker B: So that goes beyond just saying it's the right approach, but also saying we are doing it and you are missing the bus. That kind of helped mobilize a lot of lending partners who worked with us in this journey basically.
• 15:01
  Speaker A: Now when we talk about trade finance and the trade finance gap, my mind immediately goes to SMEs. I would assume that this is the group that most benefits from trade finance. But I believe you finance all sorts of different sizes of companies. So could you kind of talk me through what the difference is between the demands of each of these companies are and how you would go about financing a smaller company versus a larger company?
• 15:22
  Speaker B: For the smaller companies it's basically it's a desperate need for access to capital for the larger corporates because we finance also medium large segment to for them it's a different need. Often the banking products are usually off the shelf, very standardized products. What we do for the larger corporates, we create bespoke structured finance solutions that can help them to finance a cargo from point A to point B. Hold it, store it, sell it, purchase it, all together.
• 15:52
  Speaker A: Basically what we've spoken about so far has all been very positive. But despite this incredible growth that has been achieved by DP World over the last five years, access to working capital does, does still remain as one of the biggest constraints for SMEs, especially in emerging markets. So where do you still see the biggest gaps today? And also how is DP World Trade Finance addressing them?
• 16:15
  Speaker B: So I can separate into two. So one is digitizing the trade and logistics, the other one is digitizing trade finance. And eventually when you connect the two then you offer holistic end to end digital solutions. So digitizing the logistics infrastructure that has been the indie viewers forefront agenda and has been invested. We have been investing a lot and we have digitized significant amount of trade. Having said that, we also deal with a lot of third party institutions in the whole ecosystem from Latin America to Asia. So it's a journey to do more and more, a lot more to do in digitizing the whole trade. So you have been digitizing the. The part that we touch. It's obviously for the trade to be unlocked altogether. It requires inclusiveness, it requires collaboration among institutions and the countries. And that's a journey that we've been taking and we will continue investing in that and we have seen already rewarding outcomes out of that. When it comes to digitizing trade finance, our platform, trade finance platform that we are lender on is already highly digitized today. Our operations team do not just check the paper and then the other paper. Look, one screen and then the other screen. We've connected almost everything under the sun that can be connected through API through an application programming interface to our own platform. So our logistics team and a client gets onboarded already sees a lot of data popping up, including screening to everything else already popping up for them to make an easier decision, faster decision to onboard a client, basically, right?
• 17:55
  Speaker A: Yeah, everything's easier when it's digitized. It's just getting it to that point. I just wonder, with the external trade environment as volatile as it is right now, I mean we've seen tariffs and geopolitics. Does this have any bearing on trade finance and how difficult it is for perhaps a company to gain access to trade finance? Like, does this external trade environment make it more of a risky investment for DP World or for one of your lenders?
• 18:19
  Speaker B: Look, throughout the history there has always been a lot of challenges, that kind of risk in front of trade. But think of trade is like a living animal who wants to be free and it gets free one way or another. But it can be even more free if you help it to be. So I don't see it as a risk, no at all. It's just it continues to grow, it will continue growing. What we are trying to achieve is to multiply the impact. So while the external ecosystem is like that, there's a lot we have achieved for our clients. So I'll give you an example. So there is this small company and this is from almost four years ago now, we had not started lending ourselves even yet, so it was one of our financing partners on the platform. So they received a lead through our platform but they rejected the company. And that company approached us saying that oh, I was rejected, can you help? And this is a very small company out of a place called Punny Part in North India who has secured a contract. They are manufacturing pipes for mid income housing. So very much they buy, they need product and they secured a contract with a mid sized reputable buyer in Dubai. And this company needs to do 10 shipments to complete that contract. But they have scarce capital, they can do only one and for them to receive payment for them, they have to wait 30 to 45 days minimum, maybe more if you consider the procurement and production cycle. So that's a huge gap. You can buy and produce, but you can't buy all 10 lots of raw material. You can buy only one and for the rest you don't have money. So we set that 30 to 45 days gap for that remaining amount of shipments. We designed the whole supply chain infrastructure for them and we onboarded them on our platform. We picked up the cargo in Panipat in our inland container depot. We put it on our train. We are the largest private rail operator in India. We brought to our port in Mundara. We put it on our shipping line Unifida. We brought our port in Jebel Ali before delivering to a warehouse in Jebel Ali free zone Jaffsa, which is also owned by DP World. The buyer paid the lender on our platform and released the cargo. The seller already got the payment at day zero when we picked up the cargo in panipat so that 45 days they can quickly turn it around and keep buying additional raw material to prepare the next batch without waiting for the 45 days. And the lender on the platform got comfortable because we handled the cargo end to end. It was not a fraud or collision or anything involved. In fact, we held the cargo until the payment is received. So we took the cargo as collateral. So this is a very good example to describe how you can unlock trade finance for the global trade, address the collateral trap, decrease the cost of funding for a cargo owner, make a trade which was unbankable to become bankable. In fact, this transaction has received a recognition from United Nations Economic and Social Commission. It's in the white paper today still as a proof of what you can achieve when you embed logistics into trade finance as in the world that we are trying to do, basically.
• 21:45
  Speaker A: Oh, that's a wonderful example. And I loved the analogy you gave at the beginning of trade as a wild animal. I think that's very true, especially right now. And I think if you were waiting for a smooth year in logistics, then you'd be waiting a very long time. So it's great to hear that these amazing things that you're doing are still happening while all of this external trade noise is going on. You mentioned free zones there, which I want to talk about. Because another way in which DP World is helping SMEs is through the use of free zones, which for those listeners who don't know, they are designated areas within a country that offer special economic incentives to businesses. So these promote trade and investment by providing tax exemptions, simplified regulations and infrastructure support. So could you give me a bit more detail about free Zones that DP World operates and how these fit into your trade financing operations?
• 22:34
  Speaker B: Absolutely. Actually, I go one step back. We operate business parks. Some of them are free zones, some of them are inland warehousing operations. And why it's needed because a major technology manufacturer out of out of South Korea brings the cargo from Korea, passes the Indian Ocean, could go straight to maybe further west or stop by in the middle in India or go to Saudi Arabia or join Sri Lanka. But they make the headway up to the Arabian Sea, turn the hormones, trade, come back to Dubai and put their cargo in Dubai. Why do they need that? Because we have offered them a distribution center in Jebelelli free zone. So in that zone they can store the electronic products and distribute to the wider Middle east and the GCC countries. So to offer more. In today's trade and commerce ecosystem, the consumers are more and more demanding. They want their phone received today, tomorrow, when they want to buy it, when they order from an app. So these large manufacturers need warehousing and distribution centers. That's why some of them will be free zones, Some of them will be unbonded warehouses in inland business parks that we handle. When it's in a free zone, obviously it is planned to distribute to the wider region, not just that specific country. So you don't need to nationalize that product to in a given country, but you keep it close so near shore that product to the, you know, nearby countries. That's how they can help the companies to be closer to the consumers. This could be also an assembly unit in a free zone or a bonded unbonded warehouse business park. Basically.
• 24:23
  Speaker A: I feel like we could do a whole episode just on free zones. I have so many more questions, but we do need to wrap up the episode at some point. So I just kind of want to have a look at what comes next for DP Wild Trade Finance. At the moment you've got over 45,000 companies registered on the platform. It might be more. I feel like my data might be a bit out of date.
• 24:43
  Speaker B: Or is 58,000. 58,000.
• 24:46
  Speaker A: Oh, wow. Okay. That is. That is a lot more. So what does success look like for DP World Trade Finance in the next phase? And what excites you most about what's coming next?
• 24:57
  Speaker B: Look, so far we have seen a significant traction in the countries where we are live. We are live in India, uae, South Africa and Turkey. So we are financing companies in those countries now next phase is to go live in additional countries. And now the immediate one is the uk. We'll have A team there in a few months to help finance companies in the uk, either bilateral directly or along with other lenders in the pipeline. We have Asia Pacific region, Australia, Hong Kong, Singapore are the likely targets. In North America, we have a growing presence as well, US and Canada. So in Latin America, DP World manages a lot of ports and logistics infrastructure. So we have ports and terminals in Dominican Republic, Brazil, Peru, Ecuador, Chile, you name it. So we will create specific ad hoc programs for financing specific cargo there, for example, financing frozen fish out of Ecuador to North America. So it's all about enabling the trade where and how it needs. We will never go with an off the shelf product. It will be tailored to the specific country needs or the trade needs. So that's the kind of road path that we are going to follow. And the plan is to increase more and more the use of DP World House bill of lading the digital ecosystem so that we can collateralize the cargo more and more in different parts of the world as we already do today. So keep expanding the adoption and the coverage across the globe. We expect this momentum to multiply in the coming years. And while doing that, we plan to collaborate with the other financial institutions as we do today.
• 26:33
  Speaker A: It sounds like you've got a very busy few years ahead of you with probably lots and lots of traveling. I'm excited to touch base with you in a few months or years and see how these numbers that we've mentioned have grown. 58,000. That is a lot. Thank you so much for joining me. It's been wonderful to speak to you today. I really hope you enjoyed your time on the Lodestar podcast.
• 26:53
  Speaker B: I did. Thank you so much, Charlotte. Real pleasure speaking with you and I would love to speak again in some time.