The logistics of Trade Finance have always been a complex mix of third parties, regulators, transport and stores, supported by documentation, lots and lots of documentation. For hundreds of years the movement of goods from supplier to customer has been as difficult and long-winded as Marco Polo’s journeys along the Silk Route. Now that we are in the 21st century, the old way of doing things is going to be disrupted all along the supply chain. Blockchain technology can be used to smooth out all the kinks in the process, via a combination of distributed ledgers and smart contracts.
Transparency and Trust
A distributed ledger, because it is available to view by all participants in the transaction, gives transparency as to where the goods are at every step along the way. Smart contracts are essentially business rules that will automatically set things in motion as soon as a certain condition, such as a date or a receipt of payment happens. This removes the need for human and manual intervention, doing work currently undertaken by roles such as customs officers and shipping clerks. Most of the roadblocks in the way of moving goods efficiently from one country to another are removed, because these obstacles have grown over the years because of a lack of trust. The receiver in the supply chain does not want to confirm delivery until the goods are received; the supplier likewise will not proceed until he is assured that payment has been made.
Surprisingly, when one considers how many checks and balances there are and how much documentation is generated at each step in the supply chain, fraud is a major problem in trade finance. This is where the use of blockchain helps eliminate fraud; it is immutable. Once a transaction has been verified and added to the blockchain, it cannot be changed. The high visibility also plays a part in removing fraud and tampering.
Keeping the Conscious Consumer Happy
Another benefit of the improved transparency, in this age of responsible consumerism, is that the end buyer can trace the origin of part or all of the product he is buying, ensuring that fair trade practices have been applied. It can also be used for validating carbon credits where applicable.
The Benefits of Blockchain in the Supply Chain
The overall effect of implementing blockchain even as a partial component of the supply chain is improved velocity. Lead time and lags waiting for documents to be signed and cargo to be inspected are shortened dramatically or removed altogether, removing waste from the process. This is vital, especially when perishable goods are being freighted. Obviously a faster, more automated process will be far cheaper too, so landed costs on imported goods will be reduced, encouraging more foreign trade. The lowered costs also remove barriers to entry for small and medium businesses to trade globally and grow their businesses.
Not a Perfect World Yet
The only constraint in adopting blockchain all along your supply chain is that it is early days yet, and it may not be possible to replace all the paperwork and bureaucracy immediately. Some ports and customs and excise will be more able to adapt than others, and some of the participating banks and clearing agents may not be able to automate letters of credit and bills of lading because they lack the infrastructure. However, this is a temporary situation, and the best advice is to implement blockchain for your supply chain as soon as possible and be ahead of the pack. Let us guide you on this new and exciting journey.