Geopolitical risk is an ever-present challenge, and global events over recent years have only heightened its impact on international trade. The war in Ukraine, uncertainty in the Middle East, new sustainability taxes and reporting, and now the rising concerns over trade wars and US tariffs have all combined to create an unpredictable environment for businesses. These disruptions have caused short-term volatility, including stockpiling, substitutions, and redirections of trade flows, compounded by operational delays in critical trade routes such as the Panama Canal.
As geopolitical risk increases, so too does the complexity of risk assessments for banks and trade finance providers managing their own risk exposure. This underscores the need for trading houses to have robust, integrated systems that not only manage risk but can also prove to partners, stakeholders, and regulators how they are actively managing and mitigating it. A modern Commodity Management System (CMS) like CommOS can provide the tools needed to navigate this challenging landscape.
The Need for an Effective Commodity Management System
Supply Chain Visibility
To successfully manage geopolitical risk, companies need clear visibility into their supply chains. Whether it’s to respond to sanctions or to navigate sudden geopolitical shifts, knowing where goods are sourced and where stock is located can make all the difference. For example, companies that pulled out of Russia following the Ukraine war needed immediate access to origination data to manage their exposure. And with US tariffs undergoing constant restructuring, mistakes in origination or shipping delays from affected countries could prove very costly.
Managing Tariffs and Sanctions
One of the major geopolitical disruptions right now is tariff and customs duty changes. As well as visibility, these require your systems to have the ability to manage taxes across all documentation, making quick changes as the duties change with little warning, which introduces more operational risk into already complex trade flows.
Sanctions can also change suddenly during periods of heightened geopolitical risk. The logistics management aspect of a CTRM or Commodity Management System should therefore also support your business in proactive sanctions compliance, such as through the OFAC sanctions checks carried out in CommOS.
Position Visibility and Portfolio Diversification
A diverse portfolio is a key piece of the resilience puzzle. With the right systems, such as CommOS, in place, businesses can monitor where stock is located, the level of exposure to certain markets, and the impact of any disruption on their overall position. This allows teams to act quickly and efficiently in adjusting strategies to mitigate risk as part of their daily operations, not only when disruptions occur.
Increasing Visibility of Sustainability Data
As regulations around sustainability continue to evolve, companies also need access to real-time sustainability data. The EU Carbon Border Adjustment Mechanism (CBAM) and the European Union Deforestation Regulation (EUDR) are examples of how swiftly regulatory changes can impact global trade. And with countries such as the UK, Canada, and Australia also exploring similar taxes, expect further regulatory disruption soon. A Commodity Management System must therefore integrate sustainability data alongside the traditional deal capture and logistics information to ensure compliance with changing global environmental regulations.
Counterparty Risk Management
In volatile markets, managing counterparty risk becomes even more critical. A good Commodity Management System allows your business to manage counterparties alongside your deals, including certifications and expiry dates, past audits, credit lines and usage, late payment data, and more. Managing counterparty risk on an ongoing basis in your Commodity Management System mitigates this risk but also means that your team have the information to respond when disruptions do occur.
Managing Geopolitical Risk with CommOS
Complete Live Position and Supply Chain Visibility
CommOS provides traders and risk managers with complete, live visibility of positions, allowing for better decision-making in real time. Customisable dashboards let users highlight what matters most to them, including stock locations, the origin of goods, and the status of shipments, enabling teams to respond swiftly when the geopolitical situation changes.
Tracking Shipments and Managing Risk
CommOS integrates with vessel tracking software, giving traders and logistics teams the ability to track individual containers in real time, even whilst at sea. Combined with the live inventory and warehouse management, this integration enables businesses to assess whether geopolitical events may impact their people, stock, and delivery schedules, and take immediate mitigating action.
Counterparty Management
CommOS offers a robust counterparty management module that enables businesses to assess and pre-approve counterparties early and quickly, reducing exposure to counterparty risk and allowing traders to act decisively and with assurance. And with real-time updates, certification management, and scheduled alerts for expiry dates, businesses can ensure they’re following Know Your Customer (KYC) protocols on an ongoing basis, not just during onboarding or during periods of heightened risk.
Managing Taxes and Tariffs
The changing regulatory landscape can be difficult to manage, but CommOS simplifies the process by automating the creation of shipping documents, contracts, and invoices, ensuring any duties you add are included in all relevant documentation. The automated shipment workflows ensure that customs duties are paid on time and help businesses manage stock movement across borders. Meanwhile, automated reporting and dashboards allow a quick assessment of any outstanding duties or charges.
Complete Audit Trail and Compliance
All actions in CommOS are carried out within the system, providing a complete audit trail for every contract, shipment, and lot. This not only reduces operational risk but also ensures that businesses can verify exactly what happened at every stage of the process. Automated management and compliance reporting provide additional transparency and help ensure that businesses can meet regulatory requirements without disruption to busy traders and operators.
Conclusion
Geopolitical disruption is one of the major risks in commodity trading, and its impact exacerbates other risks, from the operational to the financial. However, a modern commodity management system like Gen10’s CommOS can significantly mitigate these risks.
By providing real-time position data, automating complex workflows, and ensuring complete auditability, CommOS enables businesses to navigate uncertain markets with greater agility. With CommOS, teams can leverage their expertise to make better decisions, reduce exposure, and ultimately improve resilience against geopolitical challenges.
