Making Sense of Blockchain Technology in Cross Border Trade

  Published on 9 June, 2020

Making Sense of Blockchain Technology in Cross Border Trade

  Published on 9 June, 2020

Making Sense of Blockchain Technology in Cross Border Trade

  Published on 9 June, 2020

Making Sense of Blockchain Technology in Cross Border Trade

  Published on 9 June, 2020

Successful use cases of blockchain in cross border trade

 

Challenges of Cross Border Trade

Today, with technological advancements, the world is more connected than ever. As the interdependence of the world’s economies grows, the process of cross-border trade in goods and services becomes more complicated, and the flow of trade documents and information becomes more complex as more stakeholders are linked in the supply chain.

According to the World Economic Forum, the costs of processing trade documents can be as much as a fifth of the shipping cost. International Air Transport Association (IATA) has also reported that an air cargo shipment could generate up to 30 paper documents. In each year, more than 7,800 tons of paper documents are processed, and that is equivalent to 80 Boeing 747 freighters filled with paper.

With more stakeholders involved, it causes a gap in the communication between stakeholders due to unstandardised processes, data silos and diverse levels of technology adoption. Different systems might not be able to talk to each other or government authorities, resulting in information flow between stakeholders to rely on manual and paper-intensive processes.

This lead to another problem – fraud.

For example, a single trade finance application can require over 100 pages of documents and paper documents make it easy for fraud as it is near-impossible to automate most checks on the physical documents. Another possible example of fraud is making false statements to obtain certificates of origin and fraudulent import and export permit declarations.

 

Digitisation of the Communication between Stakeholders in Cross Border Trade

So the key to driving global trade forward, as shared by our CEO Mr Desmond Tay at the webinar on blockchain, organised by the Frankfurt Chamber of Commerce and Industry in Germany, is to digitise the communication between stakeholders, to enable trade information between stakeholders to flow digitally.

Digitising communication between stakeholders brings:

  • Convenience – Reduce paperwork and manual submission of documentation
  • Fraud Prevention – Supporting documents such as Bill of Lading, Customs Permits, Certificate of Origin are transmitted directly from reliable sources, such as Shipping Lines, Customs, Chambers, and many more. Hence, providing trusted data to recipients.

  • Data Exchange – Data can be exchanged through the platform electronically, using technology such as EDI or blockchain, enabling recipients to have automation in some of the process (such as verification) and reduce data entry work.

  • Visibility & Data Analytics – Increase in the transparency of information flow. All stakeholders in the ecosystem have access to the necessary information to make decisions to benefit the entire ecosystem, such as preventing duplicate financing.

 

Role of Blockchain in Cross Border Trade

Digitisation of the communication via a central network might be able to efficiently harmonise and maintain consistent information flow between all the stakeholders, but it is not without problems. There will be issues such as ownership of data, where data is stored, data sovereignty and data protection.

Hence this is where the power of blockchain comes through. A blockchain is a distributed database that is used to maintain a continuously growing list of records, called blocks. It is a shared digital ledger, which means nobody owns the data, and can be used to record and store transactions between multiple participants in a network. Any changes made to the blockchain record must be approved by stakeholders through an automated process. By design, blockchains are also inherently resistant to modification of the data, so fact information cannot be deleted, only appended, which means companies can locate and prevent fraudulent activity in their supply chain.

Blockchain’s rapid and efficient mechanisms also mean that complex claims and changes in ownership can more rapidly be resolved, avoiding more lengthy back-and-forths between different stakeholders, building a collaborative global trade ecosystem.

 

Digitisation of Trade Document with Blockchain (Certificate of Origin)

Due to various reasons, some businesses are still using the Certificate of Origins (COs) in the paper format, which puts them at risk of fraud. Some other companies would prefer going for electronic Certificate of Origins (eCO) as it seems more secured and the application process is easier and faster.

So what is the difference between vCargo Cloud’s Smart eCO solution on blockchain and other eCO solutions?

Similar to other eCO solutions, our Smart eCO allows businesses to apply and submit their ordinary CO applications conveniently through a web-based system. The applications will then be verified and approved via Smart eCO, and this allows traders to check their approved applications easily online at their convenience.

However, what makes our Smart eCO different is that we provide the flexibility for businesses to have both the paper and digital COs while ensuring the prevention of forgery and fraud by using blockchain technology. Furthermore, by depositing the digital COs in a blockchain network, and using a QR code feature, our Smart eCO allows stakeholders such as exporters, chambers, and other users of CO to easily verify the authenticity of both the paper or digital COs without incurring huge implementation cost.

An illustration of how our Smart eCO works:

Smart eCO on blockchain

Shared by Mr Desmond Tay, CEO of VCC, with 80 participants attending the webinar on blockchain, organised by the Frankfurt Chamber of Commerce and Industry in Germany

 

Other Use Cases of Blockchain

Being forward-thinking, in terms of technology, VCC has also applied blockchain technology to other cross border projects, to digitise the communication between stakeholders and has proven to improve process efficiency.

VCC has been working closely with Singapore Customs, Singapore International Chamber of Commerce, Belgium’s T-Mining Blockchain Logistics, DigiChambers and Federation of Belgium Chambers of Commerce, to automate cross border CO exchange between Singapore and Belgium, using blockchain. For example, a Belgium exporter can securely and digitally send the approved CO by Federation of Belgium Chambers of Commerce to Singapore. When the CO data reaches Singapore, it will be digitally managed and extracted to prepare for Import Declaration for Singapore Customs.

Another project that VCC has worked on is the “Cross Border CO Exchange Within ASEAN” project. A Cambodia exporter will apply preferential CO with the Cambodia Ministry of Commerce (MOC) and information of the CO will be transferred to various parties and eventually reached Singapore Customs via Singapore Single Window. Concurrently, while the data are being transferred, the exporter can send his shipment to Singapore. When the shipment arrives at Singapore’s port, the Singapore Customs would already have the information needed to clear the shipment. Singapore Single Window will then send eCO utilisation back to Cambodia Single Window via ASEAN Single Window, for Cambodia Customs for documentation.

This is how CO Exchange in ASEAN Single Window (ASW) Works:

Successful use cases of blockchain technology in cross border trade to help make sense of blockchain technology role in cross border trade

Shared by Mr Desmond Tay, CEO of VCC, with 80 participants attending the webinar on blockchain, organised by the Frankfurt Chamber of Commerce and Industry in Germany

 

As proven in both projects, blockchain is powerful and useful in cross border trade and logistics as it helps:

  • Eliminates paper handling, transporting and processing cost
  • Removes repetitive data entry work which reduces human errors
  • Avoid incomplete or missing documents, and improve data quality
  • Prevent fraud from forging of documents, particularly, forging of Certificate of Origin.