Domestic letters of credit (L/Cs) could play a bigger role in trade finance as buyers increasingly look for shorter supply chains according to head of global traditional trade products at HSBC, Vinay Mendonca.

Speaking to Euromoney, Mendonca was commenting on the HSBC Navigator: Now, Next and How for Business report, which found that several factors were shortening supply chains.


According to the HSBC survey of more than 6,000 companies worldwide, 61 per cent of respondents said they thought that countries were becoming more protectionist in their outlook.

Aside from the looming prospect of a US-China trade war, countries including India and China are now sufficiently developed to meet fast-growing domestic demand with locally sourced products.

Urgent deliveries

Another driver of shorter domestic or at least regional supply chains is the increasing demand from online consumers for next-day or even same-day delivery.

The HSBC survey found that 74 per cent of trade in Asia-Pacific and Europe was being conducted within those regions, and Mendonca sees a role for L/Cs in this context.

Domestic L/Cs

"L/Cs are often thought of in the cross-border trade context, but they can be adapted for domestic, single-currency use for financing and risk mitigation purposes," he suggests.

According to the survey, strong growth forecasts of 77 per cent globally and 82 per cent in Asia Pacific are derived from respondents seeing rising trade with their near neighbours.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.