Banks often get involved in international trade by offering letters of credit and related financial instruments. International trade that operates on open account, however, leaves financing out of the picture.
In response, ABN AMRO, in conjunction with global trade software company Nextlinx, Rockville, Md., developed the Alltrade platform. "Alltrade opens the door for us to offer a solution to companies for their open account portion of their international trade," said Rob Marchiori, vice president on the e-channel team in the global trade & advisory (GT&A) organization at ABN AMRO.
ABN AMRO anticipates that Alltrade will create opportunities in international trade outside of standard financial guarantees. "Of most cross-border international trade that's not intra-company, something in the range of 15 to 20 percent goes under some type of bank-backed guarantee, like a letter of credit," said Marchiori. "With Alltrade, we're really targeting that other 80 to 85 per cent."
One long-time ABN AMRO client, Payless ShoeSource, hasn't used letters of credit for several years. However, the company relies upon Alltrade to manage its entire trade process from purchase order to packing list. "It didn't change what we bought, it didn't change the way we bought it, but it changed the way we manage how we pay for it and how we manage the receivables and payables aspects of our business," said Todd Armstrong, assistant controller, Payless ShoeSource, Topeka, Kan. "If we weren't doing it online, we'd have a stack of paper and somebody at an Excel spreadsheet keying these things in."
On behalf of its 5,000 retail stores, Payless' Topeka headquarters places purchase orders with a recently-created Hong Kong manufacturing entity, which in turn places orders with several suppliers and factories. "Now, we have a more complex supply chain process," said Armstrong. "Our old systems were not robust enough to manage the complexities of the new trade agreements that we have in place."
Alltrade compares Payless' purchase orders with shipment data out of the Hong Kong facility, taking the form of either commercial invoices, packing lists or inspection reports. An automated performance verification engine matches the information, giving the company greater control over the payments process. "Alltrade provides the assurance that the transaction has actually shipped and has actually been inspected, so you're not paying invoices blind." said Marchiori. "You're paying with the assurance that the documentation and the compliance criteria has been met."
Payless and its Hong Kong trading partner both benefit from the reduction of paperwork. "The paper-based version of the performance criteria were eliminated for Payless in the trade chain," said Marchiori. "Those documents are generated and submitted via the Alltrade system."
Alltrade minimizes ordering costs by determining the quickest shipping route, taking into account duties, taxes, tariffs, export restrictions and import quotas across numerous regulatory entities. Through Alltrade, Nextlinx offers electronic data feeds of trade-related content, including denied party screening lists and landed cost calculations based on harmonized tariff schedules.
For customers that use letters of credit, ABN AMRO can simply extend Alltrade's functionality to include the financing portion. "If Alltrade determines that the particular shipment is in compliance, then the bank will make payment and collect from the importer," said Marchiori. "We're confident that if those performance criteria are met, then we're not at risk."
ABN AMRO is employing its technology know-how to process international trade agreements on behalf of not only its own customers but also those of other banks. Indeed, it appears to have staked out a strategic position as a processor for global trade business originated by other banks, similar to its role in processing mortgages for loan originators.
So far, a top 25 U.S. bank and a prominent Japanese bank have outsourced their trade services businesses to ABN AMRO's GT&A group. "They're what we're calling 'full insourcing' deals, in that we do all of their trade processing, from offering the products via a Web-based suite of products--all the way through to answering the phone for operations," said Marchiori.
Tight data integration between ABN AMRO and its financial institution partners ensures that trade services customers receive consolidated data on their banking relationship. "If you're using both cash and trade services, you'd get a single view of that in reporting," said Marchiori.
The company has been consolidating its processing and support centers into single sites that will cover Asia, the Americas, and the EMEA (Europe, Middle East and Africa) region. At the same time, branches in over 75 countries will collect documents for processing by the regional centers, while also providing a base for sales and operations.
"We are really looking to leverage the operational infrastructure that we have in place and will try to insource more banks' trade processing so that we can drive volume to that structure," said Marchiori. "That's how we're going to make a profit."