Boosting the Trade Finance Value Proposition

JPMorgan Chase is striving to achieve a unified financial and logistics supply chain. With its acquisition this year of trade management software provider Vastera, New York-based JPMorgan Chase is offering a global logistics management solution that blends its traditional treasury functions with Vastera’s logistics services. This enables trade services customers to optimize cash flows and liquidity, while ensuring seamless customs compliance, supply chain performance and documentation fulfillment. Paul Simpson, SVP for trade, e-payables and card solutions at JPMorgan Chase’s ($1.16 trillion in assets) Treasury Services unit, discusses the convergence of finance and logistics with Information Week’s Steven Marlin.

What is JPMorgan Chase’s value proposition for trade finance?
We help companies with high-volume, high-value global trade business cut costs, save time and remain compliant with regulations. We offer an array of global trade management solutions that help reduce risk, improve compliance, and monitor and track business performance. We also streamline the flow of international shipments and information associated with the cross-border movement of goods.

What new services are your trade finance customers demanding for managing the global supply chain?
Our customers expect us to take a greater role as trusted adviser and facilitator of technological efficiency and risk mitigation. As third-party logistics providers increase the scope of services they deliver across both the physical and financial supply chains, our customers expect us to be fully involved in the delivery of such services. Our traditional role of trusted intermediary provides the perfect platform for such involvement and also leads to significant opportunities for further supply chain enhancements.

Our clients have pushed us to provide total transparency into both the financial and physical supply chains. Whether you call it cash management, trade finance or logistics information management, it all comes down to transparency. Our clients want to be able to maximize working capital, which requires having the ability to cut across both the financial and physical supply chains. Whether you’re an exporter who wants to get paid more quickly or an importer who wants to manage your cash flow and inventory, you need to have transparency into the physical supply chain — meaning knowing where the goods are and when they’ll arrive.

How diverse is your customer base?
We deal with the smallest merchants up to the largest names in the corporate world. Chase’s merger with Bank One gave us a huge book of middle-market business reaching across 15 states.

What distinguishes Chase’s trade finance offerings from those of other banks?
Many banks offer cash management and trade products. But JPMorgan Chase, through the acquisition of Vastera, is able to offer a truly integrated cash, trade and logistics solution that brings together the physical and financial supply chains.

How does Vastera work?
Vastera automates key trade processes, such as documentation for imports and exports, determining correct licensing and classifications, ensuring compliance and tax requirements, managing inventory, and tracking payments. Suppose I’m a manufacturer that’s importing components and then re-exporting them as part of a finished product — Vastera manages the import process, classifying what was being imported, ensuring that customs duties get paid and speeding customs clearance. Then, on the exporting side, Vastera ensures that you’re able to reclaim a lot of the duties that you paid as an importer. As an exporter, it’s vital that you classify products correctly, ensure that you get the correct export licensing and check whether your trading partner is a restricted party. Vastera manages all of these processes, with the net result being that the exporter gets paid more quickly.

What are the technological challenges associated with bringing logistics into the trade finance mix?
On the logistics side, the largest challenge is integrating with major entities in the supply chain, such as freight forwarders, shipping companies, and port authorities and customs. The objective is to develop a standard interface and messaging protocols for communicating trade information among all the relevant parties. It’s a large-scale effort.

Another challenge has been converting paper-based processes to electronic ones. For example, a certificate of origin can take two to three weeks to obtain in paper form; we’ve succeeded in shortening that time to two to three days. That means an exporter will get paid in days instead of weeks. Vastera utilizes a rules-based engine driven by international government regulations and export compliance requirements. Data is updated continually, ensuring that customers have the most-current regulations and requirements, and are protected from costly financial and legal penalties due to compliance errors. It also contains a global data repository that provides a single source for product and partner data, and can be used to automatically populate forms and documents.

We’ve built in a lot of connectivity to shippers and other parties in the logistics chain, which enables clients to focus on what they do best and not have to worry about the details of trade processing.We’re also pushing clients to adopt newer solutions, such as stored-value cards and electronic invoice presentment and payment (EIPP).

How well has Vastera worked out so far?
In the past two years, we’ve saved $2 billion for our 10 largest clients with Vastera. It comes down to return on investment and savings. Companies are realizing that they can save lots of money by outsourcing trade processing. The world has become a smaller place, and clients are buying and selling from trading partners they’ve never seen. Technology solutions like Vastera help bridge the gap between buyers and sellers.

How has Hurricane Katrina impacted JPMC’s trade finance business and its customers?
It’s been a cause of major disruptions in shipping, but overall we’ve weathered the storm well. Chase is doing everything it can to aid in the recovery effort. We’re actively supporting food stamp programs and also have provided card-related products.

Does JPMorgan Chase work with other banks to deliver trade finance services?
Yes. If a supplier is located in Asia and doesn’t have a banking relationship with JPMorgan, then we will work with a partner bank in Asia that will provide the basic financing and transaction processing. It’s a win-win — we’re doing what we’re good at, and the partner bank is doing what it’s good at. It’s worked very effectively.

Where does the Internet fit into your business model?
I see the Internet as being a distribution channel. We provide a Web-based portal for accessing a suite of trade applications and processes, such as trade information retrieval and transaction initiation, document preparation and purchase order management. Users can initiate trade transactions via the Internet, and submit inquiries and exchange information with vendors and trading partners on letters of credit, collections, standby letters of credit and bank-to-bank requirements. Customized templates, vendor and advising bank databases, discrepancy notifications, transactional approvals and an automated purchase order capability are part of our Web-enabled solution suite.