While people across the globe have been exchanging digital documents for years, international trade has failed to keep the same pace as most companies involved still prefer paper.
However, thanks to recent developments, this could soon change.
Trade is going digital and companies are set to reap huge benefits, avoiding lengthy delays while papers get physically checked, stamped and transported between parties.
A recent Mckinsey report revealed that digital platforms can cut the cost of exporting by as much as 83 per cent compared with traditional export channels.
For trade to go digital, people need assurance that trading documents can’t be replicated or forged
Traditionally, the paper method has been seen as the safest way to confirm that goods and payment have changed hands. To disrupt this mindset, banks and technology companies need to find digital alternatives that are authentic, legally binding and accepted by all users.
Finally, through a series of developments, this is now starting to happen.
Forces align to drive digitisation
First, the International Chamber of Commerce has created a set of uniform rules to support trade in the digital world. This provides a framework for banks to accept so-called ‘documents of title’ electronically – a significant step forward.
Second, we’ve seen the emergence of new payment technologies, including crypto currencies such as Bitcoin. While headlines about virtual currency often focus on its popularity among consumers, the trade finance world is more interested in the technology behind it.
For trade to go digital, people need assurance that trading documents can’t be replicated or forged. The technology behind crypto currencies can help enormously, by building this assurance and enabling users to track and document entire transaction chains.
Many companies are now realising that they could get left behind and miss out on huge cost savings, if they don’t invest in digitising their trade
A number of pilots have been launched and, if successful, could give the trade finance industry the security it needs in order to fully digitise trade.
Third, banks and their clients increasingly recognise the importance of investing in technology to support digital trade.
Many leading trade banks, including Standard Chartered, have invested heavily to update their back-office systems over the past few years. This improved infrastructure is essential and this will help digital trade to become more commonly accepted by users.
Meanwhile, companies such as BHP Billiton, the global resources multinational, are leading the way, transforming all of its systems to accommodate digital trade and spurring other companies to follow suit.
Digitising trade saves time and money
Many companies are now realising that they could get left behind and miss out on huge cost savings, if they don’t invest in digitising their trade.
Take the example of one of our clients, a global exporter in metals and mining ships goods between two countries in Asia: the company took its trade paperless and saved up to a colossal USD50,000 per shipment. In addition, it significantly reduced its turnaround time by eliminating physical movement of documents, by up to a week in some cases.
The big steps forward that we are now seeing towards digitised trade are extremely encouraging, but more needs to happen.
With digital trade, working capital is no longer tied up for days or weeks in goods stuck in ports and warehouses, but available to be invested
Though some countries have made great strides to embrace digital trade documents, importers and exporters need more support from local customs and excise officials, many of whom still favour paper documents.
Change will take time, but the benefits are clear. With digital trade, working capital is no longer tied up for days or weeks in goods stuck in ports and warehouses, but available to be invested elsewhere. And buyers get their goods sooner.
Compared to the latest smartphone or smartwatch, digital trade documents might not sound like the most exciting of technological landmarks. However, it could have a far greater impact on our daily lives by speeding up the trade flow of everyday goods, such as the latest tech gadget and spurring economic growth.
Essentially, in future, our goods could become cheaper – and all because documents confirming the trade of goods around the world are finally going digital.