Introduction: Blockchain is a
transformative new technology, like artificial intelligence (AI),
big data analytics, machine learning and Internet of Things (IoT)
innovations. In the popular press there is a lot of turmoil
concerning cryptocurrency, a type of blockchain-enabled investment.
The volatility of cryptocurrency is well known. You can make a
killing, you can lose your shirt, regulators fear it; the risk is
real when investors speculate with cryptocurrency. I believe that
the concerns surrounding speculation with cryptocurrency hinder the
broader conversation about the base technology, blockchain.
Blockchain technology has the potential to provide major efficiency
and security gains for international supply chains.
Current Situation: There hasn’t
been a significant technological change in international trade
operations since email was introduced 30 years ago.
Currently, all stakeholders in international transactions
(manufacturers and producers, banks, buyers, sellers, shipping
companies, customs brokers and freighter forwarders, truckers,
customs administrations, and insurance providers) must have their
own separate files and databases with all the documents related to
a specific transaction. Typical documents filed multiple times by
multiple players include the purchase order or contract, letter of
credit, bill of lading, warehouse receipts, commercial invoices,
payment documents, and proof of receipt. One calculation for an
export of cut flowers from Africa required 200 separate
communications involving 30 players such as farmers, freight
forwarders, land-based transporters, customs brokers, governments,
ports, and carriers to move a shipment to Europe. The systems
for data tracking have no digital compatibility and use repetitive,
manual, costly, inefficient, insecure, and time-consuming means.
Today, mandatory requirements for digital filings for importation
and exportation must be filed through “single window”
electronic systems that vary by country. These many
inefficiencies in the overall international supply chain process
add up to increased costs for the businesses and consumers
involved.
Blockchain as a Records System: The
time is ripe for significant improvements in the systems used for
managing supply chains. Blockchain technology is a
transformative tool for managing records in a transparent and
secure way. It offers every participant a complete record of
every transaction with each player involved in the movement of
goods from factory or farm to final delivery. Blockchain is a
clear improvement over current processes because it uses end-to-end
encryption to provide both security for the data and a permanent,
immutable (uneditable), auditable record of every step in the
movement of goods.
Trust and Identity: These
blockchain features enable parties who have no trusted relationship
to engage in reliable transactions without relying on
intermediaries or a central authority (e.g., a government or bank).
Each user on a blockchain has a secure identity and
only parts of it can be viewed by other participants in the
blockchain process. Not relying on a central intermediary not
only reduces costs in international trade transactions, but it also
opens up new avenues for collaboration among stakeholders and
improves transaction efficiency by removing an extraneous step in
the supply chain process.
Smart Contracts And IPR: “Smart
contracts” are one of the key innovations of the Ethereum
blockchain and can be used to program automated functionality into
business processes built on the Ethereum blockchain. Smart
contracts can automate the fulfillment of contractual obligations
and prevent fraud (title to goods transfers only upon digitally
verified fulfillment of conditions). Producers,
manufacturers, shippers, distributors, retailers and customers rely
upon the authenticity of products, trusting that a brand on the
invoice is in fact that brand, not a cheaper counterfeit knock
off. One of the unsung advantages of smart contracts on a
blockchain is that it provides protection for intellectual property
rights (IPR) by providing a complete record of the product’s
documents and movements. With blockchain technology, products
may be linked with non-fungible tokens at the moment of creation
and those tokens serve as digital certificates of title. So,
documents providing title to goods can be traced from the creation
of the good until its ultimate consumption.
Marketing Benefits: Information
hosted on a blockchain can provide numerous benefits to retailers
and customers. Distribution of specific goods can be managed
and tracked by smart contracts to provide companies with better
control of IPR and distribution channels. Companies can use
smart contracts to track ownership of the good, to provide better
recall, warranty, and maintenance information to owners.
Blockchain also enables customers to transparently see the digital
record for a specific product from raw materials to final
purchase.
Sensors and Blockchain: Many types
of goods require special handling, such as, such as perishable
agricultural commodities, chemicals, hazardous materials,
etc. For shipping such materials, sensors can be embedded on
shipping containers to record location, temperature, potentially
other metrics. Data collected from the sensors wirelessly can
be recorded on the blockchain. Buyers can confirm that the goods
have received the handling required and can view in real time the
status of their goods on the blockchain.
Customs Processing: Blockchain
records can enable importers to provide explicit compliance
information to customs authorities as to ownership, authenticity,
handling, components sourcing, country of origin, and price of
goods. Electronic filing allows officials to conduct risk
assessments in advance and speed border clearance. Most
databases now are compiled on a central hub that slows data access
and increases the risks from hackers and cyber criminals.
Blockchain-enabled software and services can increase speed and
security of gathering and tracking relevant information.
Companies Building Blockchain for Trade:
“With IBM, Maersk has created a platform poised to
bring the entire trade ecosystem—liners, warehouses, freight
forwarders, ports, customs, exporters, importers, and trade
finance banks—to interoperate with each other on a data
exchange platform running on blockchain. In this system, all
players have a bird’s eye view of the entire trade transaction,
access to all documents related to it, and share data and
information; no entries can be changed, and all entries are updated
on everyone’s screens in real time. The platform has already
been piloted to ship flowers from Kenya, mandarins from California,
and pineapples from Colombia to the port of Rotterdam. Each
participant can also see the status of customs documents or view
bills of lading and other data in real time. The data is secure, as
no one party can modify, delete, or even append any one of the
blocks without the consent of everyone else in the
network.” (CSIS Harnessing Blockchain for American
Business and Prosperity: 10 Use Cases, 10 Big Questions, 5
Solutions).
Blockchain Services Providers Emerging:
Another company building blockchain processes is Covantis.
Covantis is building a secure digital platform to minimize
operating risks while increasing market efficiency for the entire
commodities and trading and shipping industry. Covantis is
currently working with a number of agricultural industry companies
to manage the shipment and execution of bulk commodities such as
corn and soybeans from Brazil to optimize the export trade
execution process. Covantis has partnered with the market
leading technology provider ConsenSys (Largest Ethereum based
incubator of blockchain companies), Microsoft Azure, and Cognizant
to leverage their solutions and services and deliver an innovative
technology platform to transform global trade operations for
agricultural commodities. Initial users of the platform
include ADM, Bunge, Cargill, COFCO, Louis Dreyfus Company, and
Viterra.
Summary: Blockchain technology innovates
an industry that has remained technologically stagnant for over 30
years. Blockchain technology also reduces costs and improves
efficiency in how international supply chains are currently
operated. Not only does blockchain technology improve the existing
operation of international supply chains, it also has the potential
to innovate and reimagine how supply chains are operated and how
stakeholders collaborate. I believe that the efficiency gains and
cost reductions will lead to a significant competitive advantage
for companies that adopt blockchain technology, and ultimately
benefit the consumer at the end of supply chain.
Here are some resources for this topic:
Blockchain for Global Trade and
Commerce – Consensys is the leading Ethereum based
blockchain solutions company whose CEO, Joe Lubin, was one of the
founding members of Ethereum. https://consensys.net/blockchain-use-cases/global-trade-and-commerce/.
The linked article has resources on International Commodities
trade, Global Trade Finance, Trade post settlement, distribution
control, transparency, and verified ownership.
Harnessing Blockchain for American Business and Prosperity: 10
Use Cases, 10 Big Questions, 5 Solutions, by Principal Author Kati
Suominen, with Andrew Chatzky, William Reinsch, and Jonathan
Robison, November 2018. https://www.csis.org/analysis/harnessing-blockchain-american-business-and-prosperity.
On-Demand Webinar: Blockchain and International
Trade, Trade Finance, and Supply Chain
Can Blockchain revolutionize international
Trade? – 2018 WTO Research Paper
WTO 2021 Blockchain and Trade Forum
https://www.wto.org/english/res_e/reser_e/blockchainforum2021_e.htm#
50 Companies using Blockchain technology
Blockchain & DLT in Trade: Where Do We Stand? This
white paper was jointly produced by Deepesh Patel and Emmanuelle
Ganne. November 2020. https://www.tradefinanceglobal.com/posts/tfg-partner-up-with-icc-and-wto-and-the-global-blockchain-forum/
Mr. Holbein gratefully acknowledges the contributions of Justin
Holbein.
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