Blockchain at the Service of International Trade: Commodities in the Spotlight
The technology of shared or distributed networks, commonly known as Blockchain , has all the necessary assets to establish itself as the essential technology in the sectors of maritime transport and international trade, particularly because of its high potential for transparency and security.
A need for transparency in international trade
In the raw materials sector, transparency and proof of authenticity are a prerequisite for ensuring market confidence in traded goods.
However, the titles of the goods are still recorded in paper or manual registers, which may call into question the reliability of the entire goods supply chain because of the risk of fraud.
Such a risk materialized in 2014 during the scandal affecting the Chinese port of Qingdao. International banking players have faced huge losses due to the likely significant fraud of a commodities trading company. The latter would have used the same stock of raw materials to guarantee multiple lines of credit, without the knowledge of the banking institutions which granted such loans…and in all illegality.
How the Blockchain can revolutionize the international trade of raw materials?
The Blockchain has been increasing attention in the area of trade and transport of raw materials. Today, 90% of the world’s goods is transported by sea, and the costs associated with the administrative processing of commercial documents would represent about 20% of sea freight costs.
An international shipment of goods needs to be controlled by dozens of organizations during its journey. In addition, the process is based on paper or manual checks. Indeed, if a document is missing, during a stage of the process, all the goods are blocked until the situation is resolved.
Blockchain technology, with its transparency and security properties, would improve the traceability of the supply chain. It is therefore in this supply chain that multiple actors intervene.
It is therefore possible that, when one of the stakeholders in the logistics chain signs a document – associated with a given shipment – a digital version of the document is created, for example containing the quality of the goods, their weight or their identity from the original seller. A unique and encrypted fingerprint of this document is then registered on the Blockchain and becomes accessible by all actors. In the event of disputes, each of the stakeholders will be able to consult the register and make sure that nobody has modified it afterwards.
Some stakeholders predict that the digitization of the supply chain using Blockchain technology could save up to 20% of international sea freight costs by significantly simplifying commercial documentation and, ultimately , greatly reducing the risk of fraud, as well as the time of transportation of the goods.
The challenge of a sectoral transition
Supply chains still rely on the recording of paper or manual documents, which are inefficient and greatly increase the risk of fraud. In the future, they are expected to digitize. The Blockchain technology will constitute, tomorrow, the essential technological infrastructure of the digital supply chains in the trade of raw materials.
A key issue will lie in the transition of actors from a model based on paper documentation to a new paradigm, peer-to-peer, automated ensuring better traceability of goods, without obscuring however that the Blockchain will not solve alone all the challenges related to fraud.
