Home Technology Going with the Flow – Digitisation will Transform Trade when Based on Reality

Going with the Flow – Digitisation will Transform Trade when Based on Reality

by internationalbanker

By Ian Kerr, CEO, Bolero International 

After two decades of innovation, the benefits of digitisation are becoming clearer to banks, corporates, carriers and many of the other parties involved in international trade.

No major conference or event for trade or financial institutions passes without the topic of trade digitisation being very high on the agenda.

Nevertheless, the majority of trade transactions still largely rely on paper documentation despite significant progress in technology and applications. For many, the message is still not getting through about the advantages of digitisation.

The focus is perhaps too often on technology alone as the panacea for all of the cost and efficiency problems generated by paper documents. In reality, for any digital solution to work it must be based on the everyday experience in international trade, improving a range of complex business processes end-to-end.

Interoperability is crucial to future solutions 

In this context, the interoperability of any new technology with other applications becomes a necessity. On the cusp of great change, we are being presented with the opportunity for a ‘network of networks’ and integration with the ‘Internet of Things’ to facilitate international trade. Working in parallel with developments in the movement of goods, the internet of things could entail assigning a unique IP address to each pallet or container so physical and financial trade flows can be tracked together.

Bring this network of networks together and the gains will flood in. Risk and the pricing of risk are improved substantially along with transparency, costs and speed. However, the core processes underpinning this complex of digitised trade finance transactions need to be fit for purpose.

The gains from trade document digitisation are being realised 

Blockchain is certainly a technology that promises major efficiency gains. Yet, to be a success, any blockchain-based solution will need to achieve integration with ERP systems, bank’s back office systems, traditional trade workflows and existing trade platforms that are already using digitised trade documents, such as electronic bills of lading (eBLs).

The bill of lading is a significant document – a receipt from the carrier for the goods it describes, a contract for their carriage and a document entitling the rightful holder to claim delivery.

Once digitised, protection of an eBL lies firstly in the subscription of participating parties to a multi-jurisdictional legal rulebook, outlining everyone’s roles and responsibilities, and secondly through the use of a messaging platform and title registry database.

The eBL lifecycle management platform performs the “sending” and recording of the document from party to party and delivers it to the next holder, while the holdership is recorded in a title registry attached to the eBL platform, ensuring its uniqueness. The registry can only be updated by the current holder, and without the title registry record, the document has no status and is just a copy of the data.

Trade Digitisation is racing ahead

We are seeing greater acceptance of trade digitisation among banks everywhere from Italy to China, along with some of the world’s largest companies. Electronic document presentation has been adopted as far afield as South America, India and Asia, with organisations such as BHP and Rio Tinto using the technology to accelerate secure and trusted execution of transactions in the Far East.

In India, Reliance Industries, a vast business with interests that range from hydrocarbons to refining, retail and telecommunications, last year collaborated with HSBC to complete an electronic letter of credit (LC) for an export deal. This was the first document exchange of its kind to take place in India, requiring just a single day for completion rather than the standard 20-plus days for physical Letters of Credit and related paper documents.

Future developments must continue to be designed around workflows

There is no question that we have to leave paper-based processes behind, but for digitisation to be successful, technology must not just match, but look to radically improve day-to-day working processes in international trade.

Yet this is far from straightforward when there are multiple parties, using multiple documents, across numerous jurisdictions in different time zones. This requires deep insight into the way trade works and how trusted and legal execution of transactions is achieved. Organisations must also adopt a philosophy of digitisation and move away from ‘but we have always done it this way’ mentality.  Only then can a solution be designed and implemented which operates to everybody’s advantage. Technological innovation on its own is never going to be enough when the world of international trade is so complex and so fraught with dangers.

Blockchain applications are already here, but to have the greatest chance of successful implementation they must be capable of operating in conjunction with current digital platforms used by the banks, corporates and carriers.

Any technology must support and facilitate the business processes on the ground in every part of the world in order to fulfil expectations and bring us all the huge benefits of trade digitisation.


Related Articles

Leave a Comment

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.