At the BAFT global annual meeting in May, TFG sat down with heads of trade to discuss the current state of trade in Asia. 

This conversation covered the shifting supply chain landscape, the implications of high energy prices, the transition from brown to green energy sources, and the emergence of digital islands.

Shifting supply chain landscape

For a host of reasons, the world is seeing the largest shift in physical supply chains that it has seen in the last 20 years.

The logistics logjam that traders around the world have experienced in recent years is causing many firms to question whether just in time (JIT) logistics is still the most efficient way of operating a supply chain.

The Russia-Ukraine crisis and persisting lockdowns in China have further compounded the issues first brought to the surface by the COVID-19 disruptions of 2020. 

As the fallout from this crisis begins to come to light, nations are starting to take a stand and alliances are beginning to form. 

Many experts believe that the world is segmenting into a handful of polarised trading blocs that echo the East-West divide of the cold war era. 

For global banks, this poses a particular challenge.

Present-day sanctions and customer pressure to cease operations in Russian-aligned economies aside, if these trading blocs become more robust in the coming years, global banks will need to adopt an even more localised mindset to stay relevant in each market. 

Gains and hardships from high energy prices

It is no secret that energy prices have skyrocketed since the February 24 invasion of Ukraine.

In the short term, this is going to lead to simultaneous gains and hardships for nations, depending on which side of the energy trading transaction a nation is on.

Resource-rich net exporters of energy will benefit from selling the same volumes for much higher returns, while resource-poor net importers run the risk of being priced out of the market.

This is already beginning to occur in Sri Lanka.

The economic conditions in the country were already heavily impacted by the COVID-19 crisis and now the high energy prices are compounding the situation.    

This is unlikely to be the last country-level issue that will arise given these conditions.

The transition from brown to green energy 

Sustainability and the green energy transition have become hot topics in recent years, with many climate activists advocating for a full transition to renewable sources.

While this is a noble ambition, simply switching to green in a short period of time is not feasible for many economies, particularly those in the Asia-Pacific region. 

According to BP’s Statistical Review of World Energy 2021, Asia Pacific accounted for 79.9% of the total global coal consumption in 2020, burning 120.97 exajoules (EJ) of the 151.42 EJ used by the entire world. 

The volume used in the Asia Pacific region has also increased by an average annual rate of 2.3% over the last decade, compared to a global average annual increase of 0.9% for the same time frame.

Seven countries in the region experienced annual coal consumption increases greater than 9% per year for the last 10 years: Indonesia (9.4%), Pakistan (10.5%), Bangladesh (11.0%), Philipines (11.2%), Vietnam (16%), Sri Lanka (38.1%), and Singapore (60.6%). 

While collectively, the absolute coal consumption of these countries in 2020 (~4.6% of total global volume) is dwarfed by the larger consumers like China and India (54.3% and 11.6% of total global volume, respectively), the fact that the use of coal is increasing speaks volumes.

A transition away from these brown energy sources in the short term is simply not going to be possible for these and many other developing nations around the world that rely on the cheap energy source to power their electricity grids. 

Digital islands in China, Southeast Asia, and Western Europe

As digital tools for trade and trade finance are being developed around the world, we are beginning to see a segmentation into various regions, the most notable of which are China, Southeast Asia, and Western Europe. 

Being developed in relative isolation, these geographic divides are morphing into a discrete set of digital islands. 

As many practitioners and policymakers seek to create an integrated and island-free digital trade landscape, there has been ample discussion around the idea of interoperability.

However, it is possible that interoperability does not actually align with what the industry really wants. 

To be fully interoperable, in the purest sense of the term, means that everyone is using the same code.

However, at this relatively early stage, the industry really needs to promote innovation – something that pure interoperability will stifle. 

Other integration approaches, like APIs that can allow for the facilitation of micro-services across platforms, may be better suited for the challenges at hand.