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Times they’re a Changin’: Blockchain in International Trade

By    |   April 9, 2018, 5:48 am EDT

Containers at Dock

International trade moves billions of dollars of goods every day, from one part of the world to another. According to the A.T. Kearney 2017 State of Logistics Report, the global container shipping capacity has grown 148% in the last 10 years. E-commerce has both contributed to this growth, as well as, added to the complexity of global supply chains.

The international supply chains are marred by complications. Business to business customers can often take up to 3 months to pay their suppliers. The complexity of contracts has inadvertently attracted lawyers and bankers. This has added to the costs and delays associated with international shipments. The supply chains lack traceability. This makes it virtually impossible for the suppliers to identify the defective batch and eliminate defects.

International trade relies on an outdated system that is slow, inefficient and costs the industry billions of dollars a year. A new digital technological platform, that is Blockchain, can potentially solve these problems for the industry.

A Rich, Transparent and Shared Information Network

The products travel through a vast network before it reaches the consumer. It involves suppliers, storage spaces, shipping carriers, distributors, and retailers. The complexity of this supply chain has many potential negative consequences. Unknowingly, we buy into systems that damage the environment, create enormous waste and employ people under unsafe working conditions.

Blockchain can serve as a single, transparent and secure network. It breaks the information silos and makes it visible to buyers, sellers, authorities as well as customers.

Blockchain's Single System of Record
Image credits: Provenance

This facilitates real-time tracking of cargo for everyone involved. Besides, blockchain makes paperwork redundant. Not only is blockchain difficult to manipulate, the smart contracts can take care of compliance in a much more efficient manner. Delivery notes, party agreements, invoices, customs clearances, and inspection certificates can all be stored and verified on the blockchain cloud.

Self-executing Smart contracts

Smart-contracts are essentially if-then clauses that store and validate information related to a transaction. Any two parties entering in a transaction can create a smart contract. They define milestones and set expectations against them.

At every stage, when the respective conditions have been met, the agreement enforces itself. (source). Let’s consider that an item was successfully delivered. A smart contract can trigger a payment as well as place orders with suppliers as soon as the delivery was approved.

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Decentralised and Secure Document System

A cryptographic key links every transaction recorded on a blockchain ledger to the previous transaction. As a result, it is easy for an algorithm to detect if the ledger has been tampered with.

Recently on Reddit, a person from Shipchain’s team said, “I think one of the solutions to preventing (or minimizing) fraud and mistakes is to have proper documentation, a problem that has been plaguing the industry since the beginning of time. Blockchain technology itself doesn’t minimize fraud, but it provides an environment for decentralized and secure documentation, which makes discovery easier.”

Shipchain Home Page

Shippers stand to benefit from a massive reduction in trade documents and related processing costs. Blockchain will also provide visibility of the container as it advances through the supply chain.

Customs authorities will gain real-time visibility into the supply chain. This will give the authorities better information to analyze and target risks. Blockchain will make the border inspection procedures much more efficient, safe and secure.

It’s Happening, Already!

Australian vehicle manufacturer Tomcar has been saving payment processing costs on its merchant payments since 2013. Within a year, the company was using Bitcoin to pay ~2% of its suppliers.

Global retailer Walmart started tracking sales of pork meat in China in 2016. Responding to a proposal by the Chinese FDA, Walmart used IBM’s Hyperledger platform to create a transparent and secure record for every item sold at its stores.

ShipChain, a startup based in LA, is helping Perdue Farms to increase visibility across the supply chain. With this increased transparency, Perdue farms is looking to efficient communications with the various carriers involved in their supply chain.

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