Why blockchain could become the new container of international trade: Digital record-keeping offers potential of lower costs, less cumbersome procedures.

AuthorGanne, Emmanuelle
PositionSPECIAL REPORT

International trade in goods has experienced comparatively little innovation since Malcom McLean invented the intermodal sea container in the 1950s. Containerization revolutionized transport of goods. It cut freight costs drastically by removing the need for repeated handling of parcels. It did not, however, streamline bureaucratic processes or eliminate paperwork.

International trade transactions continue to rely heavily on paper forms. Shipping a container of roses and avocados from Mombasa, Kenya, to Rotterdam, the Netherlands,, can produce a pile of paper 25 cm high and the cost of handling it can exceed the cost of moving the container. More than 100 people and 200 information exchanges are involved in the process, leading to complex and often duplicative administrative procedures, which weigh most heavily on small businesses seeking to participate in international trade.

A new technology, blockchain, is seen by many as the possible next game-changer.

Could it become the new container of international trade? What makes this technology so unique?

A blockchain is a digital record of transactions--the term is used here in its generic form to refer to distributed ledger technologies. It is decentralized (no single entity controls the network) and distributed (records are shared with all participants) and transactions are shared, verified and validated on a peer-to-peer basis. Transactions are time-stamped and stored in a highly secure, verifiable and nearly permanent way thanks to various cryptographic techniques. Smart contracts, i.e. computing programmes that automatically enforce themselves when specific conditions are met, can be used to automate transactions.

REAL-TIME COLLABORATION

Blockchain therefore allows participants with no particular trust in each other to collaborate on an equal basis in real time with the guarantee that the information on the block-chain has not been tampered with. These unique characteristics make it a particularly interesting tool to accelerate the digitalization of trade and streamline trade processes.

The promise of greater efficiency and higher security is leading an increasing number of financial institutions to explore how the technology could better facilitate trade finance processes. With 80% of trade financed by some form of trade financing--letters of credit or supply chain financing--trade finance is the backbone of international trade. However, such processes, in particular letters of credit...

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