The simple delivery of refrigerated products from East Africa to Europe can pass through nearly 30 people and organizations, with more than 200 different interactions and communications between them.
The process of issuing credit letters until approval takes between seven and 10 days.
Up to one fifth of the actual cost of physical transportation in cross-border trade is the sum of costs associated with processing and administering business documentation.
But what if everything is digitized? That’s what is allowed by Blockchain. About what and what changes are needed for international trade? Come on look. Bitcoin revolution is real!
Let’s start by understanding what is called Blockchain technology
In simple words; this is an information registration system, safe, anonymous, decentralized and free of forgery. This is possible thanks to the operation. The following is an explanation in a mathematical perspective:
Blocks: they are containers of information that we want to store. This container forms a chain because each block has some information about the previous block, and this in turn about the previous block, and so on, up to the first block in the chain. The element that allows blocks to be chained is Hash (masking) which represents all the information from the previous block.
Network Participants: All participants in the network keep an exact copy of the blockchain. None of the participants has all the information and the others look for it there as it did on the database server. Everyone here has a copy of their information so it is more difficult for them to get lost.
For example, the Bitcoin Blockchain is a network of computers, tablets and other devices that install Bitcoin software. The Bitcoin Blockchain lists every Bitcoin transaction in history. So by reading the blockchain it is possible to find out how much Bitcoin each user has and where they come from.
Blockchain is a chain of blocks with relevant information that is stored / replicated on various devices or computers that make up the network, and not only that, the block information is encrypted and only whoever makes it can see it. That is what makes the information safe, decentralized, and anonymous.
This technology has hundreds of uses for various productive sectors, and international trade is an excellent arrangement to show its potential. To find it, we will start by recognizing the current weak points in trade finance and this will reveal the opportunities represented by the Blockchain.
Greater inefficiency and increased costs, time and risk are the main challenges facing financial institutions today when providing financing solutions for world trade with their manual processes and the use of separate platforms.
According to Deloitte in his book “How Blockchain Can Reshape Financial Trading,” the financial market of trade in 2015, 5 years ago, measured more than 10 trillion dollars, but regardless of its size and growing, this is an industry with some changes in the modus operandi.
The limitations of this technical and business model can be overcome by using Blockchain, because it offers a digital registry that is secure and shared globally. Deloitte has also re-imagined how trade agreements will change with the use of blockchains. This is the vision of the future they share:
The vision of what international trade finance will look like with the use of the Blockchain. Benefits such as requiring one connection to the entire network and that information belongs to all participants, and that the provider does not control and own all data, have led companies in various countries to promote its use.
5 success stories in using Blockchain for international trade
Marco Polo Network: at the end of 2017, more than 70 companies from 25 countries on 5 continents (banks, non-bank funders, companies from various sectors, technology, logistics, shipping, insurance companies, among others), TradeIX and R3, launched this network that allows access to various trade finance solutions such as open accounts, traditional and / or structured solutions. This platform can be executed, adjusted and used by each user, and during the pilot project, more than 700 financing requests were completed, including factoring requests, with an average of one user training day.
We.trade: Launched in 2018, this network among SMEs in European banks offers services including bank payment guarantees and invoice financing. In addition to the benefits offered by Blockchain, participants highlighted the new relationships made possible by banks.
Letter of Credit (LC) – Wave / Ornua: Transactions, which can take between 7 and 10 days, are reduced to less than 4 hours and allow trading of cheese and butter by almost $ 100,000. This letter of credit between the Irish agricultural food cooperative Ornua and the Seychelles Trading Company was announced in 2016 and created on a platform developed by Wave, an Israeli Fintech.
Marubeni Corporation / IBM Letter of Credit: In 2017 this commercial transaction was carried out between Australia and Japan (conglomerate Marubeni Corporation and Sompo Japan Nipponkoa) and tested from the issuance of credit letters to the delivery of commercial documents, which were completed digitally on the IBM Hyperledger Fabric platform. Shipping documents, for example, is reduced from a few days to two hours.
IBM – Maersk supply chain: the union of the two companies, one for technology and the other for container shipping, is set to digitize ship cargo inventory. The network will integrate shippers, shippers, maritime operators, ports and customs authorities, and each participant can see the progress of shipping merchandise by exchanging real-time events, customs document status, shipping, among others. According to IBM, this is a solution for customs authorities because information risk analysis is improved.
It seems that Bitcoin will be a real future for global trade operations.