Blockchain Technology in International Trade

Blockchain: a 360° tool

One of the key features of blockchain technology is its flexibility to adapt its potential to different sectors, optimizing existing procedures and allowing the development of new ways of working and doing business. On the other hand, the pursuit of efficiency is inherent in every evolutionary movement and therefore intrinsic to nature in general, and to human nature in particular.

From the intersection of these two factors, it is understood how it is not only useful but now necessary to evaluate its application in a complex sector such as international trade; a sector clearly central in the globalization era, during which it has assumed an even more prominent role in the world economy. Already at a first analysis, the main characteristics presented by blockchain technology offer clear advantages at 360°: transparency and data storage for the numerous documents and certifications required; the possibility of automating procedures involving a complex ecosystem of actors: customs, carriers, terminals, forwarders, shippers, banks, insurance companies, shipping companies, etc.

Each of them corresponds to a series of actions that blockchain technology could support, speed up and expand, reducing work times and costs.

Logistics

The growth of trade and the increasing complexity of exchanges have led to the emergence of an increasingly complex and sophisticated universe of processes, regulations and certifications, which affect total costs and part of which could certainly be avoided: it is currently considered that around 20% of them derive precisely from bureaucratic components of a physical nature that digitalization could eliminate, adding to the cost-opportunity savings (time) also the direct cost savings (four categories of documents can be summarized: those related to the sale itself, the lists submitted by the exporter before the actual exportation; trade finance documents such as credits and transport documents; and those related to border procedures).

In this sense, blockchain technology could be the platform to welcome and streamline practices and procedures, for example:

• Registration and management of checks on international certifications, nomenclatures, etc. automatically, securely, transparently, and unchangeably;
• Support and speed up the preclearing procedures of goods – a tool that allows clearance to be carried out directly at sea, reducing container dwell times at ports – with maximum transparency in real-time and coordinated even at the level of sequential time schedule of the different arrivals;
• Speeding up customs procedures by automating the most purely bureaucratic steps and providing real-time data analysis and collection tools;

Strengthening the speed of the logistics chain, gate automation of goods, and tools such as fast corridors that would benefit even more from relying on the computing power offered by blockchain technology, its scalability and its intersection with artificial intelligence.

Strengthening information along the entire supply chain thanks to 360-degree traceability: from the products being exchanged (since their primary origin) of which all data could be stored (which could then be crossed with certifications and different customs steps), to the actual physical movement of the same in containers. In the end, by using blockchain throughout the chain, it will be possible to follow every step of a product: from its origin to its ultimate destination.

Financial Dynamics

It is certainly very interesting to frame the issue from a financial perspective. The rapid development that Decentralized Finance is experiencing is opening doors to scenarios that were not conceivable before the advent of blockchain technology.

Enabling the possibility of direct and P2P transactions without the need for bank intermediaries could allow small businesses and producers to participate in international trade, without being rejected by what we could define as “access barriers” to financial services in traditional channels. They could therefore enter this world, clearly taking on the risks that peer-to-peer management entails, but also seizing the opportunities that trade can offer.

The DeFi world could expand the actors of commercial transactions to the maximum, providing direct access to financing services offered by various financial technology companies, regardless of the presence of banks.

And this sort of “democratization” of risk-taking, which would acquire greater independence from the size of the risk-takers – in a scenario where the vision would come before the “size” – can also be thought of in more de-structured forms: for example, by considering the tokenization of assets and traded goods.

The token (generated and managed transparently by blockchain technology) can be used to make even physically indivisible units divisible, whose parts could then be the subject of exchanges, purchases, and sales, in specific, limited, and modifiable time frames. As for shares in companies, the same containers could also be virtually decomposed into a set of tokens, each of which would correspond to a certain value.

Instead of investing in the company that trades, spot investments could be channeled into a specific container or product; investments that, due to their flexibility and size, could be open to a wide range of investors, managed by smart contracts. The tokens could be available at all times during the journey, until the final exchange takes place, with the value/premium for the holders varying as the risk or the need for financing from those providing the tokens changes (perhaps adopting the fascinating logic of relative value, which is at the basis of Uniswap’s success).

Conclusion

Already from this first analysis, the doors that blockchain technology is able to open for international trade appear numerous and complementary in their diversity. The further interesting thing is that, whether in a scenario dominated by globalization, such as the one we have been used to thinking about, or in one of returning to greater protectionism – a direction in which some of the world’s leading economies, including the USA, seem to be moving – blockchain technology can equally represent a decisive factor towards maximizing efficiency.