This article explores how blockchain will affect global trade by revolutionizing supply chains.
A supply chain is the process of moving a product or service from supplier to customer. The supply chain encompasses the transformation of raw materials into the finished product. The procedure gets increasingly complicated if goods have to travel across borders.
Did you know that the administrative costs of shipping a container are twice the cost of actually shipping it?
The complexity of trade explained by The World Bank
There is a whole lot of paperwork, when exporting or importing goods. You need permits, licenses, and certificates that have to be authorized at several checkpoints in the supply chain. The final arbiter in a border transaction is Customs, whose role is to ensure that all such permits have been obtained, that they are valid, and that the goods have been lawfully declared and all regulatory requirements have been met.
To do the above efficiently, the ideal for Customs or other border agencies would be to have a set of trustworthy documents (invoices, bills of lading, packing lists, etc.) that accurately describe the nature of the goods, their conformity to the required standards, the inspections and authorizations that they have undergone, and any changes of hands along the entire supply chain.
The reality at the moment is that not all the above information is available to authorities and what information there is often requires verification. Therefore, goods are often subjected to a high level of scrutiny including, potentially, physical inspections or laboratory tests. This results in high costs for the traders, delays in clearing the goods, and a high degree of resourcing for the government authorities.
We describe this process in order to give you an idea of the magnitude of the bureaucracy behind a “simple” trade between countries.
The potential of blockchain
“What if all the steps in the supply chain, from origin to destination, were captured in a blockchain? This could provide a degree of assurance that the information is correct as it originates at source and was not ‘manipulated’ along the way” – Luc Pugliatti, Senior Trade Facilitation Advisor
- Data integrity: blockchain works in an incremental and traceable fashion. The supply chain process in a blockchain would guarantee that all requirements have been met at each step, thus no retrospective validation would be needed.
- Simplification: blockchain offers an automation of the supply chain process. There would be no need to reproduce information or for manual paperwork to be validated.
- Increased security: fraud and corruption is not uncommon in trade. It is estimated that fraud in global trade is $600 billion. That is almost twice the amount of Denmark’s GDP. Blockchain would secure that data cannot be altered retrospectively as the ledger represents the single source of truth.
- Big data: if we used blockchain in trade, we would eventually have a huge mine of ‘big data’ that could be analysed for patterns and trends to enable increasingly sophisticated risk profiling, which would enhance the border authorities’ risk management capacity.
It is estimated that non-tariff trade barriers suppress global trade by 15%. Could the advent of blockchain in trade change this?
Want to know more?
Digi-Talks is hosting an event about how blockchain can reduce trade barriers; view the details here.
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