What are the Benefits of Blockchain in Global Trade and Commerce?
International trade is a $16 trillion market that accounts for the exchange of capital, goods, and services across international borders or territories. It is broadly split into two categories:
- 75% various goods typically shipped by shipping containers or ground transportation
- 25% commodities
From a shipping and transportation viewpoint, the trade and financing industry primarily suffers from a lack of trust and coordination between exporters and importers, particularly within emerging to developed markets. Additionally, the industry maintains various operational inefficiencies due to the complex nature of operational processes in the international trade of goods and commodities. For instance, shipping and trading still heavily rely on human resources and are affected by manual and paper-based processes which are very costly, slow and error-prone.
Exporters and importers face challenges to finance or guarantee their transactions, which stymies growth and limits the benefits from globalization. Historically this space has been very resistant to advances in technology and digitization although some technologies like Commodities Trading & Risk Management (CTRM) solutions have proved useful.
Over the past 10-15 years, many start-ups and technology companies have attempted to develop products with mixed success— until the emergence of blockchain technology for which international trade is identified as a primary use case. The potential impact of blockchain technology on international trade finance has spurred many companies and consortiums to update their outdated technology. Beyond ushering in the era of digitization, blockchain enables the tokenization of existing documents, letters of credit, and more. Smart contracts will improve coordination between exporters and importers through the automation of agreements, business events, and other manually intensive processes. The global adoption of blockchain technology will create even greater benefits for cross-border coordination, trade settlement, and standardization.