Blockchain: Mapping new trade routes to trust
June 26, 2018
The border is a national asset. Facilitating legitimate cross-border trade must be high on every government’s agenda. International trade is complex and typically plagued by inefficiency. Despite digital advances, most cross-border trade administration remains largely paper-based and even a single transaction involves a network of multiple stakeholders.
At the heart of this complexity is an inherent lack of trust between buyers, sellers, supply chain participants, agencies and governments. That’s where blockchain comes in as the potential game changer for international trade. This technology’s three key characteristics - distributed (shared dataset), consensus-based and security – all build trust. If stakeholders can collectively use blockchain to overcome the fundamental lack of trust, the trade ecosystem will become more efficient, secure and adaptable for the future.
Blockchain is now high on the agenda of most leading customs and trade organisations. But with so much buzz about the potential of blockchain, it’s easy to see how customs agencies may feel swamped by all the different examples where the technology is or could be applied. The temptation is to lead with blockchain as the solution and then go in search of a suitable problem.
Accenture’s view is different. By creating a framework comprising four key areas affecting trade activities we aim to provide a new way to assess blockchain’s potential based on the challenges that customs agencies and traders need to address to foster greater trust, reduce complexity and secure economic growth.
In essence, this is about using the right technology in the right way to solve the inherent lack of trust and create flexibility for the future.
The creation of a secure digital identity based on blockchain could significantly reduce the lack of trust in the e-commerce era and overcome barriers to more efficient trade. A digital identity would be beneficial for traders, goods, containers or even documents as their “identity” could be proven at various points along the supply chain. Blockchain removes the need for physical documentation to be carried with goods or exchanged at a point of handover, and could also play a crucial role in verifying the origin and certification of sensitive goods such as livestock, fresh food or diamonds.
In essence, a cross-border trade transaction is the same as buying a loaf of bread but the distance, time and lack of trust make the process far more complex. The key to reducing this complexity is to identify the “trigger” events to prompt the next action along the complex supply chain. Blockchain enables this business logic to be built into “smart contracts” that automatically and legitimately trigger the correct action.
Clearing a single shipment across a border typically involves 15 agencies and sometimes as many as 40.
An estimated 70% of information entered into shipping documents could be populated using existing data.
As goods travel from origin to destination, they change hands frequently, requiring considerable processing and exchange of documents and data. A “pathfinder” ledger built on blockchain could act as a pipeline of goods information throughout their journey, building up an entire record of every supply chain movement of entities, goods, packages or containers. It would ensure accurate information about the condition of goods at every point in time, taking ‘track & trace’ to a whole new level.
A much less explored, but no less important, area for blockchain is its potential to facilitate collaboration between government agencies. Different government agencies perform risk analysis controls based on their own confidential risk rules. Using blockchain to share the control decisions and results, without revealing intelligence or sensitive information, would contribute to more holistic and accurate risk assessment.
Singapore and Hongkong are working on a cross-border blockchain solution that mainly aims to combat trade finance fraud. Once in place, other countries and government agencies will be able to adopt this model and set it as an example to emulate.
As they assess the applications that blockchain may have to create trust and eradicate inefficiency, it’s critical for customs agencies and governments not to get distracted by the technology, but instead focus on the problems it can help solve. By using the four areas outlined above, agencies can start to build a robust business case for blockchain to help cross-border trade become more efficient, faster and ultimately more valuable. Ultimately, it all comes down to trust. And blockchain could be the game changer to lower the trust barriers for everyone involved in today’s complex cross-border trade ecosystem.