Driving digitalisation of trade documents through blockchain technology

A trading transaction for seaborne cargo can leave behind a trail of documents at least as long as the ship itself. Bills of lading, packing lists, letters of credit, insurance policies, orders, invoices, sanitary certificates, certificates of origin: the huge ships sailing in and out of the world’s ports are not only carrying lots of cargo. A shipment of avocadoes transported from Mombasa to Rotterdam by a Maersk vessel in 2014 involved more than 200 communications involving 30 parties, the company calculated. A container giant may well be associated with hundreds of thousands of documents. For many years, there had been talk of digitising shipping documents but little was achieved to walk the talk. But now at last there are signs of progress – and not before time.

According to the World Economic Forum, the costs of processing trade documents can be as much as a fifth of those to shift the actual goods. So removing administrative blockages in supply chains could possibly bring more of a boost to international trade than eliminating tariffs. The United Nations has calculated that full digitisation of trade papers could increase the exports of, for example, Asia-Pacific countries by as much as $257 billion a year.

The driving forces behind the current advances are, hardly surprisingly, stakeholders in international trade: shippers, their corporate customers, banks, insurers and governments. With the help of technology companies they are working together to digitise the paper trail. Lots of projects are under way and the platforms are based on various technologies, including the blockchain.

The use of blockchain technology means every participant with access to a ledger for a specific consignment can see the same updated version of all the documents involved. This technology enables flows of goods, information and money to be aligned, with the ledger containing all the relevant paperwork, e.g. purchase order, certificate of origin, bill of lading, sanitary certificates, etc. An embedded smart contract could trigger full or part payment once certain conditions were met. Such a ledger could also contain all sorts of other details not specifically related to the trading transaction, e.g. a shipper’s environmental credentials.

In January 2018 Maersk and IBM launched a blockchain-based joint venture aimed at digitising the supply chain from end to end. Trial projects have already been run by big companies, ports and the American and Dutch customs authorities. As the platform will be open to every interested party and run independently of Maersk, its instigators are hopeful that logistics companies, banks or other shippers will join. TradeIX, a fintech start-up, and R3, another blockchain firm, are collaborating with several banks to test another open platform known as Marco Polo. In 2017 eight European banks and IBM unveiled we.trade, a trade-finance conduit for small and mid-sized enterprises (SMEs) that is expected to be deployed in the second quarter of this year. In March 2018, Evergreen joined forces with Bolero, a provider of electronic bills of lading that has been offering them for years but made little headway hitherto. Collaborating with Evergreen could deliver the long-awaited breakthrough.

Go-ahead governments are also encouraging digitisation. Singapore is building a non-blockchain-based National Trade Platform, involving banks, shippers and technology firms. Hong Kong is creating a trade-finance blockchain platform. In November 2017 two Asian trading hubs announced the creation of a cross-border platform, the Global Trade Connectivity Network.

The gains from digitisation are party financial. Banks, for example, need significant numbers of back-office staff to unearth any discrepancies in trade documents that may point to fraudulous dealings or based on mere errors. But there are still institutional obstacles to be overcome. A UN Convention adopted in 2008 facilitates recognition of electronic documents but to come into force it needs to be ratified by at least 20 countries. As yet, only four have done so. More hopeful signs have come from the International Chamber of Commerce, which has been setting trade standards since 1919 and in June 2017 established a group to coordinate work on trade finance. Last but not least, a new initiative based in Singapore, Digital Standards for Trade, may also prove capable of driving digitisation forward.

Although nobody in the industry expects paper-based documents to disappear in the near future, there are now justifiable hopes that the digital age may be at last dawning in international trade. It will be one burden less for the global shipping industry.