Applying blockchain technology to international trade allows stake holders to take advantage of a a much more efficient and transparent technological infrastructure than the current outmoded paper-based system. Prior to blockchain’s emergence, digitizing negotiable trade documents, without creating the potential for fraud, could only be accomplished through expensive and closed members-only systems. With blockchain, however, an accurate record of possession and title can be maintained without the need for paper processing or a centralized intermediary.
The impact of blockchain technology on international trade is evidenced by its transformation of the bill of ladings system. In a blockchain-based bill of lading system, a bill of lading is established through the carrier’s digital signing of a digital bill of lading through a private key upon receipt of the goods. The shipper also retains a private key in order to make decisions regarding the cargo during the carriage, including the endorsement of the bill of lading to another third party. That third party can also further endorse the bill of lading to another party and the process continues until the cargo is claimed at the port of discharge by the party that holds the most recent private key. After each transfer, each existing private key is cancelled and replaced by a new key issued to the transferee.
These changes are not merely theoretical, but are now being implemented by many of the major stakeholders in international trade. For example, Maersk has recently partnered with IBM to build a blockchain-based bill of lading system, and it predicts that billions of dollars will be saved annually with the elimination of the traditional paper-based system. This is not surprising given that the costs of dealing with trade documentation, administration, and processing can take up to one-fifth of a shipment’s transportation costs.
Blockchain technology also allows for a dramatic reduction in the time associated with trade shipment and finance. Barclays, in collaboration with Wave, a startup focused on supply chain, executed the first blockchain-based letter of credit in September of 2016. These letters of credit were able to reduce the issuance time from over a week to less than four hours. Blockchain also minimizes the instances where a shipment is delayed due to slow, misplaced, or lost trade paperwork These errors are especially prone to occur in a paper-based system, as there can often be more than two hundred communications and thirty different entities involved in a single cross-border transaction.
The real-time information contained in the blockchain ledger will help all relevant parties to a transaction oversee a shipment’s progress. Since blockchain’s ledger is unalterable and distributed to each stake-holder, the incentives and potential for document corruption are greatly reduced. Efficiency at customs can also be greatly enhanced by blockchain, as customs officials can now have access to accurate shipment information prior to arrival.
The major stakeholders to international trade, including the major trade finance providers and shipping companies, are currently engaged on various blockchain research and development collaborations. However, it still remains to be seen what blockchain’s ultimate impact on international trade will be. For example, it is unclear whether blockchain will completely eradicate trade finance and bill of lading systems or will only modify them and make them more efficient. Nor is it clear whether a single, decentralized system will take root among all the major stakeholders or whether there will be multiple blockchain-based trade platforms. In the third and final installment of this series, I will discuss how even the role of traditional trade finance intermediaries is uncertain with the automation and trust that smart contracts can provide.
Sammy Naji is a third-year law student at Campbell University School of Law interested in practicing corporate and international trade law. Sammy can be reached via email at email@example.com. You can also find him on LinkedIn.
See Susan Beecher, Can the Electronic Bill of Lading Go Paperless?, 40 Int’l Law. 627, 635 (2006).
See Koji Takahashi, Blockchain Technology and Electronic Bills of Lading, 22 JIML 202, 204 (2016).
https://ncbarblog.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00NCBARBLOGhttps://ncbarblog.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngNCBARBLOG2017-11-10 15:33:372017-11-10 15:33:37Blockchain Technology: Its Impact on Bill of Lading and Trade Finance Systems