Author: Jacco De Jong, Bolero International

 

Digitisation still has a long way to go in global trade, with many processes still reliant on paper documents such as bills of lading used under open account, documentary collections and letters of credit transactions. This reliance on paper spawns innumerable manual processes and risks that take up large amounts of time across trade finance banks, exporters, importers, carriers, forwarders and port authorities.

The problem is that paper documents can get delayed or even go missing, are susceptible to fraud and forgery, and generate large overheads, especially when trained professionals have to spend time managing them instead of accomplishing higher value tasks such as exploring new opportunities.

On top of this, common methods around this process are, a lot of the time, antiquated and still present risk of improper use and illegal activity.

In the 2020 ICC (International Chambers of Commerce) survey of global trade finance, only 14% of banks had implemented a digital solution that delivered time-saving and cost-reduction. And just 14% of global banks reported “significant” use by their clients of digital channels for documentary trade.

Real benefits of digitising trade documents

The benefits of digitisation are obvious, increasing security, saving time and overheads for everyone in global trade.

Digitisation provides secure and legally sound electronic versions of trade documents that organisations can exchange in encrypted form.

Their transfer at the click of a mouse eliminates the long delays when paper documents fail to arrive on time.

When bills of lading are delayed through couriering, recipients incur significant demurrage costs and other unnecessary fees. Security is also vastly improved, compared with paper.

The constant visibility of digital documents and a secure channel on a trade digitisaton platform, along with embedded audit trails, together ensure that not only unauthorised tampering with documents is well-nigh impossible but, the intentional misuse and attempts of fraud internally are tracked from the beginning. With instances of this seen regularly in paper based trade finance scams.

The demand for digitisation has increased from the start of the pandemic, when lockdowns in so many countries forced corporates, banks and carriers to resort to the exchange of documents through email and other channels, which as said don’t provide the negotiable documents, security or fingerprint needed.

With China, the world’s manufacturing base, still imposing lockdowns, demand for digitisation has grown steadily. In the 2020 ICC report, 83% of global banks had a digital strategy and the percentage is likely to have increased since.

The difficulty of agreement on standards

What has held global trade back from digitisation is perceived initial need for standards for the format of trade documents and the technology and legal frameworks that support them.

These are highly complex matters that involve a huge number of national and international organisations and umbrella organisations.

Agreement is complicated by the diversity of systems and need for banks, carriers, corporates and many other counterparties to communicate and transfer between one another for a single transaction.

Last year, the G7 countries sought to push digitisation forward with the publication of a framework for collaboration on electronic transferable records to “strengthen the resilience of the global economic system and play a crucial role in trade recovery”.

The evolution of electronic bills of lading (eBLs) has also opened up exciting opportunities for the global shipping industry.

And it is encouraging to see the Digital Container Shipping Association (DCSA), BIMCO, FIATA, ICC and SWIFT recently formed the Future International Trade Alliance (FITA) and signed a memorandum of understanding to standardise digitalisation of international trade.

Yet agreement on, and subsequent usage of, digitisation standards is unlikely to happen soon.

The sheer number of organisations involved include the ICC, the UN Centre for Trade Facilitation and Electronic Business (UN/CEFACT), The World Trade Organisation (WTO), the World Customs Organization (WCO), UN Conference on Trade and Development (UNCTAD) and the International Trade Centre (ITC) to name a few.

Plus the aforementioned alliances, associations, different jurisdictions, individual government authorities and members of these chairs which usually include board members or high executives for other invested parties.

Global trade is likely to adopt multiple standards

Lack of standardisation is in fact paralysing the advance of digitisation, as institutions wait for global agreement.

It is time to realise that rather than one standard, multiple standards are likely to apply in future, as they do in other fields.

The probability of one technology provider and its own unique set of standards achieving global dominance in the near-future, or medium-term, is remote.

A growing number of global corporates and banks – especially in South Asia and the Far East – recognise this fact.

They realise current solutions that digitise international trade instruments such as letters of credit, bills of lading, and bank guarantees provide significant efficiencies they cannot ignore.

If organisations want to steal a march and establish themselves in the digital trade finance supply chain, they should deploy solutions that already deliver results.

Current platforms will become part of the solution

The development of SaaS platforms that bring the entire financial and physical supply chain together in global trade is a significant advance in this regard.

Operating as portals, they are already up-and-running and have an extensive network amongst leading trade finance banks, carriers and major importers and exporters.

They come with the approval and recognition of industry bodies such as the International Group of P&I Clubs which collectively insure more than 90 per cent of the world's ocean-going tonnage.

Banks can adopt such platforms as portals which enable them to provide far better levels of service through digitisation of trade transactions and documents.

They enhance the customer experience by providing and end-to-end visibility of all transactions for corporate customers, relieving them of many time-consuming tasks and reducing their overheads.

Trade digitisation platforms give corporates far more choice of risk mitigation and financing options. They have greater control through a new level of visibility and benefit hugely from streamlining of processes that slash overheads and ensure they no longer incur heavy costs through delays.

More advanced platforms, for example, have ecoystems of specialist technology services such as AI-based document verification, which is a boon to corporates and banks.

Interoperability is a catalyst

Another important factor is ease of interoperabilty with other platforms and systems. This is a vital capability if digitisation is to extend along the whole global supply chain, rather than being limited to organisations that become a series of virtual islands.

While global agreement on data standards, governance and semantics is still a way off, currently-available platforms already provide interoperability through plug-in, cloud-based agility.

They have the ability to deal with the variable data quality in different regions, including the emerging economies. They operate according to proven rulebooks which is an increasingly  common practice in digital B2B networks, especially when written under internationally recognised jurisdictions such as the English common law.

Move forward with trade digitsation now

Although there is a growing movement to advance trade digitisation globally, which includes very significant international organisations and companies, they are unlikely to come up with a definitive solution soon.

Banks, carriers and corporates that wait for the outcome of these deliberations risk losing out to those adopting platforms that are already in use and which are likely to become part of future standards anyway.

It is hard to see standards bodies in global trade and trade finance proposing any solution not including digitisation platforms that have already achieved significant acceptance and uptake.