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  • 6.3-E-COMMERCE AND SUPPLY CHAIN MANAGEMENT-TAKING THE PAPER OUT OF THE COFFEE TRADE: AN EXAMPLE

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  • Taking the paper out of the coffee trade: an example

     
     

    Especially larger companies today have automated  back office systems that link in with shipping portals and, sometimes, selected suppliers and/or buyers. Nevertheless, as explained in topic 06.01.03 nearly the entire  coffee trade still uses paper documentation in its dealings. While actual negotiations are conducted by phone, fax, and email, final agreements such as contracts, delivery orders, bills of lading, letters of credit and other vital documents require an original signature and mostly continue to be presented physically to the respective parties.

    Furthermore, the quality and type of shipping documentation that circulates can be quite  variable and delays may be considerable when faulty documents have to be returned and resubmitted, or cargo release is delayed because the documents are not available, causing significant and unnecessary cost.

    According to the World Trade Organization the cost of paper shipping documentation and related unnecessary costs is as high as 7% of all international trade (a cost therefore of US$ 420 billion in 1996). Clearly the concept of a facility, which allows the issue of electronic original documents with electronic original signatures, 24 hours a day, 7 days a week, is highly appealing. Cost savings apart, this will also help to eliminate middle layers such as brokers, agents and branch-offices in coffee producing countries.

    Banks and others in the trade chain are very interested both in electronic security and the standardization of trade documentation. Taken together, provided clear and enforceable standards apply, these would provide the certainty that the shipping documentation submitted is valid and negotiable, which is not always the case at present.

    For many exporters the time lapse between actual shipment and receipt of payment, executed through physical transmission of paper documents, can take as much as 15 to 25 days. In a truly paperless electronic system, the transfer of documents, transfer of title and financial settlement can be reduced to 4 days or even less, depending on the complexity of the business process.  For example:

    Typical traditional document flow 

    Day 1

    Coffee loads

    Day 2

    Carrier prepares bill of lading

    Day 3

    Shipper receives B/L (can be much later in some coffee producing countries)

    Day 4

    Shipper processes B/L to bank

    Day 5

    Bank receives B/L

    Day 6

    Non working day

    Day 7

    Non working day

    Day 8

    Bank processes documents

    Day 9

    Documents in transit to selected European bank

    Day 10

    Documents in transit to selected European bank

    Day 11

    The European bank receives documents

    Day 12

    The European bank sends documents to buyers

    Day 13

    Non working day

    Day 14

    Non working day

    Day 15

    Buyer receives and processes documents

    Day 16

    Payment effected

    Day 17

    Shipper receives paymen

    Typical electronic documentation flow 

    Day One

    Coffee loads, bill of lading raised by carrier
    B/L instantly transmitted to shipper
    Shipper uses B/L to generate other documents
    Shipper transmits to selected European bank

    Day Two

    Documents received and processed by bank
    Bank transmits to buyer

    Day Three

    Buyer processes documents and effects payment

    Day Four

    Shipper is credited with the payment

    Clearly the benefits will vary from country to country but that they are potentially substantial is obvious, especially when credit is tight and expensive, and when exporters depend on fast turn-around of their capital. However, as explained in topic 06.01.03, the coffee trade has as yet not fully accepted to use truly paperless systems and appears to be satisfied with partial solutions. Nevertheless, it is good to understand how truly paperless systems really function, as explained in the sections that follow, also because, as explained in topix 06.01.04, the increasing demand for rapid and accurate advance security information on coffee shipments is bringing ever more coffee trade players into the field of electronic information sharing. This is not to say that the electronic documentation process described in the sections that follow will be rapidly adopted by the international green coffeee trade but it is and remains an option which is why this overview is provided.