How Blockchain Technology is Revolutionising International Trade
Political, economic, and environmental issues continue to plague and undermine the performance of international trade these days. But at the same time, new technological advancements have opened up a wealth of opportunities for businesses around the world to participate in international trade seamlessly and effectively.
Among these technologies is the blockchain – a technology which allows transactions to be validated without the use of a centralised database. Initially designed and used for cryptocurrencies such as Bitcoin – blockchain is now being eyed by many international logistics operators as a means to secure, standardized, and almost real-time cross-border supply chain transactions.
According to the latest statistics from DMR, the global blockchain market is expected to be worth $20 billion in 2024 – a large chunk of which will be attributed to the finance and international trade sector – in particular the importers and exporters that need access to financial backing.
Blockchain: A Disruptive Technology?
Some experts believe that blockchain has a tremendous impact- comparable to that of the internet: a disruptive invention that could set off rapid changes thanks to the extent of its possible applications. However, the truth is that many of the blockchain’s applications will bring about only incremental improvements.
For instance, the technology can be used to help logistics operators eliminate paper contracts, securely fast-track transfer of records (purchase orders, invoices, bills of lading, customs documentation), and improve the tracking of the ownership of physical goods all throughout the shipping process – changes which could save players in the international trade hundreds of millions of dollars each year, and achieve higher operational efficiency.
Blockchain and Trade Finance
For these benefits to materialise, logistics operators must work proactively with banks and other financial institutions that participate in trade finance. Trade finance comprises the instruments underpinning international commerce—everything from letters of credit to bills of lading. This industry plays a crucial role in global supply chains – without it, sending goods across borders would cost much more, and companies would be unable to obtain the funding they need to sustain their operations.
A common trade finance offering provided by banks and many financial services providers is known as factoring. This process involves a bank paying the seller of goods before the buyer of those goods makes the payment. Naturally, banks charge rates to the supplier for this service but take on the risk that the buyer delays payment or even defaults. Despite that protection, factoring is a costly undertaking for suppliers, eating significantly into margins and introducing an element of insecurity to the payment picture.
With blockchain, trade finance would be much more efficient, leading to a wide array of benefits:
- Invoices can be tokenised once a buyer approves them, avoiding duplicate and fraudulent invoices across the network.
- Approved payables can be split up and sold incrementally, allowing lenders to purchase parts of invoices to reduce risk, which also lowers the cost of capital to the supplier.
- The blockchain immutable captures data attached to the invoice so the need to track and coordinate remittance information is no longer needed – allowing a buyer to pay without having to know the recipient.
Bottom line, the international trade is ripe for blockchain implementation because it still relies on an archaic paper-based system that is slow, inefficient, and costs companies millions of dollars each year. By eliminating these paper-based systems, logistics operators can achieve higher efficiency and lower supply chain cost.
Get to know the latest trends in international trade and the ways to leverage them by contacting Alba Consulting today. Call us at +353 1 415 1252 or send an email to email@example.com