How Can Digital Standards Reduce the Cost of Trade?
In recent years, there have been many advances in technology aimed at making global trade easier, faster, and more efficient. However, the problem lies not in a lack of innovative solutions like blockchain in trade finance, but rather in the adoption of these solutions by trade advisory services on a large enough scale to make a real difference. This needs to change.
The benefits of digitizing global trade, also known as digital trade, are many and varied, but perhaps the most significant is the potential to increase efficiency and cut costs. As things stand, the process of buying and selling goods internationally is needlessly complicated, time-consuming and expensive.
A report by the World Economic Forum (WEF), released in September 2020, found that it takes an average of 23 days to export goods from one country to another, while the time it takes to import goods is even longer at 27 days. The same report also found that cross-border trade costs – including logistics, tariffs, compliance and financing costs – amount to around 15.5% of the value of goods traded globally.
If we take a closer look at some of the individual processes involved in international trade, it’s not hard to see why things are so complicated, slow and expensive. Let’s take the example of shipping a container of goods from China to Europe.
The first thing that needs to happen is for the shipper to produce a paper bill of lading, which is a document that proves that the goods have been loaded onto the ship. The bill of lading then needs to be signed by both the shipper and the captain of the ship, after which it will be handed over to the consignee – typically the buyer of the goods.
Once the ship arrives at its destination port, the container will be discharged and taken to a bonded warehouse where it will be inspected by customs officials. The customs officials will then need to check that all of the required documentation is in order before they can release the container and its contents.
If everything goes smoothly, this entire process – from loading the container onto the ship in China to releasing it from customs in Europe – can take anywhere from two weeks to a month. But in reality, things often don’t go smoothly and delays are common. For instance, if there’s something wrong with the documentation or if there are problems with Customs clearance, it can take much longer to get the goods released from the warehouse.
One way to speed up this process is by digitizing each individual document involved – such as the bill of lading – so that they can be transmitted electronically rather than having to be physically filed away somewhere. Another way to make things more efficient is by using blockchain technology to create a digital ledger of all of the documents related to a particular shipment. This would allow anyone involved in the shipment – including customs officials – to access all of the relevant information quickly and easily.
The bottom line is that digitizing global trade would make things much faster, easier and cheaper for everyone involved. It would also help to reduce corruption and fraud, as well as make it easier for small businesses to get involved in international trade.
Read more about the benefits of digital trade standards in a piece by KYG Trade advisor Oswald Kuyler.
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