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From supply chain to blockchain: where can digitization make a difference in international trade and what is holding up progress?
By Robert Parson (Partner, London)
Modernisation and automation of global trade is a journey that has an inevitable destination. However, in a market sector which needs to continually introduce logistic and administrative improvements to maintain profit margin and increase competitiveness there still remain too many practices that date back to the age of sail and steam.
to be first with a workable blockchain solution to the trade’s multiple inefficiencies.
The reasons for this slow pace of change are complex - partly it is due to the need to change old legal rules and conventions that took centuries to achieve international consensus - but the impact of digital disruption on working practices in some countries and the ability of some economies to adapt is also having a braking effect. International trade and its financing relies on a series of inter- dependant contractual events and third party confirmations of performance coming together to prove that goods have been produced, shipped and delivered and that payment has been effected. It is a system that evolved by parties becoming comfortable with exchanging pieces of highly valuable paper: bills of lading that acted as title documents to cargos of shipped goods; typed letters of credit and bills of exchange which permitted sight and deferred payment; various certifications of performance from trusted third party service providers; and policies of insurance. It was an imperfect system relying on trust between parties, experience of trade and money flows and appetite for risk. In some countries the administration of this 19th Century process is highly labour intensive - sometimes to provide checks and balances, but often because the community has become used to the system providing employment to a wide group of people even in an age where most people own a smart phone. The international trade business has been looking at how to introduce technology both to speed up and to improve accuracy in certain aspects of trade execution and settlement for around 25 years, and to provide a digitized solution to the paper chain of trust that traders and bankers have long relied upon to act with confidence in buying, selling, transporting and financing goods internationally. Blockchain has become something of a buzzword in trade finance circles over the past 24 months as solution providers jostle
“The international trade business has been looking at how to introduce technology both to speed up and to improve accuracy in certain aspects of trade execution and settlement for around 25 years, and to provide a digitized solution to the paper chain of trust that traders and bankers have long relied upon to act with confidence in buying, selling, transporting and financing goods internationally.” Blockchain, in layman’s terms is a technical solution to the gathering of multiple third party confirmations of events and facts surrounding a particular transaction that can provide the key transaction parties with assurance that their counterpart’s performance of the contract has occurred and that the transaction has completed. What might have been achieved in former days by making a dozen phone calls or participating in a dozen meetings and exchanging multiple pieces of paper could be achieved by a dozen secure and authenticated electronic record “blocks” being “chained” together to provide incontrovertible proof of contractual performance.
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