Right place and right time

By Chen Zhida, Helmsman 
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Once an arcane and niche area, supply chains have become a topic of everyday conversation, reflecting the very essence of the modern and interconnected world.

Tensions over trade, superpower politics, the pandemic and conflict in Europe and the Middle East have sparked major disruptions in world commerce. New risks and global competition for resources will ensure the spotlight of attention remains for years to come, as my colleague and Helmsman managing director Ian Teo wrote here recently (Asia Business Law Journal volume 8, issue 3: The lawyers that keep our lights on).

Call it sheer luck or good design, this mega-trend places Singapore at the heart of the story.

Chen Zhida, Helmsman
Chen Zhida

Living and working in modern, bustling Singapore now, it is hard to imagine the bleak outlook for a tiny city-state with no natural resources when it gained independence in 1965. But Singapore’s location at the world’s biggest chokepoint for global trade had made it a natural player in its neighbours’ tin and rubber trade, and ensured it was well-positioned to ride the surge in global commodities demand following the war and the subsequent industrialisation of Asia spearheaded by Japan.

An early bet on oil refining and petrochemicals was among the far-seeing and robust government policies that reinforced those foundations. Building on these, Singapore spent decades developing an educational, legal and financial ecosystem that underpins its position as one of the global commodity trading hubs.

Tax incentives, clean government and an open economy that welcomes foreign talent and investment mean that today Singapore hosts most, if not all, of the major banks, funds, trading companies – both of financial instruments as well as physical commodities – and law firms, all feeding off and into one of the world’s busiest and most technologically advanced ports.

It is the combination of both the physical trade and institutional capacity that make Singapore’s proposition unique: a well-governed and neutral marketplace at the crossroads of trade in the most rapidly developing region of the world. Post-war development of Japan, South Korea and Taiwan established Singapore’s role as a global commodities hub, cemented by subsequent waves of growth from China, India and Indonesia.

Singapore’s legal ecosystem is key to that success. Trade in commodities has always been fraught with risks – and the legal disputes that inevitably arise. The market is unpredictable and volatile, historically marked by periods of boom and bust that mirrored the global economy.

Climate, natural disasters and geopolitical factors feature heavily. Attacks by Yemen’s Houthi faction on ships passing through the Red Sea, for example, raised insurance costs and forced vessels to take much longer routes. Between deal and delivery, conditions can change dramatically.

Plain and practical legal advice is essential at every stage of the supply chain, from the sales, shipping and warehousing contracts to insurance and risk mitigation, as well as asset recovery and dispute resolution. External risks include a growing burden from regulations and compliance – including the proliferating and complex global sanctions regimes. Singapore’s deep and expanding pool of specialist commodity trade lawyers is a major competitive advantage.

The city’s common law legal tradition is another; fair and efficient courts matter more. So, too, does judicial support for alternative dispute mechanisms such as arbitration.

Commodity and shipping disputes typically involve multiple entities in different jurisdictions, making arbitration a popular option. Disputes are typically resolved more quickly, procedures can be tailored to the case and parties can choose their arbitrators. Ensuring contracts contain clear arbitration clauses should be a top priority – one that is too often neglected.

Singapore’s rise as a force in arbitration has been swift. It recently emerged as the most popular choice of centre in the world, and this has come at a time of record numbers of cases. The Trump administration’s trade wars, the pandemic, the Russia-Ukraine conflict and high inflation combined to drive volatility and cause major difficulties for many businesses last year. Disputes have proliferated, with those related to energy, transport and commodities among the most common.

The city is also leading the way in mediation. The UN Convention on International Settlement Agreements Resulting from Mediation, better known as the Singapore Convention, came into force in September 2020, enabling courts in signatory states to directly enforce international mediation settlements.

More than 50 countries including China, Japan and India are signatories. Last year, the UK said it planned to make mediation a mandatory step in civil actions, a move it said was designed to defend its influence in the field.

Chen Zhida is a director at Helmsman

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