David BECK analyzes technological issues from a political, economic and management perspective.

Alibaba and China Merchants Port: Blockchain for international trade

David BECK Academic - Society, Politics & Techology

Blockchain is not an immature technology anymore, leading international enterprises are piloting applications built using blockchain technology and enterprise investments in blockchain solutions are now exceeding $20 billion.

We have to turn to the blockchain, otherwise it would be fatal.

Alibaba founder Jack Ma, 2018

AntChain, formerly Ant Blockchain is “a new technology brand for Ant Group’s blockchain-based solutions that also aggregates other digital technologies including AI, Internet of Things (IoT) and secure computation”. Users of the platform could, for example, include vendors that sell to other businesses via marketplaces such as AliExpress, Alibaba’s overseas e-commerce site.

Ant launched a blockchain-powered platform for cross-border trade settlements last year, ahead of its stalled blockbuster IPO. Its platform “Trusple”, a contraction of “trust made simple”, is based on the company’s blockchain technology Antchain.

COSCO, one of the largest shipping companies in the world and a major player in overseas trade, began testing AntChain in 2020 by saving freight records and import licenses.

Because of lockdowns imposed by governments, many suppliers are temporarily ceasing production, and logistics providers can no longer transport goods seamlessly across borders. This problem affected manufacturers which either had their manufacturing capabilities located in China or relied on Chinese suppliers. Most manufacturers are battling to overcome legacy procurement systems that cannot move at the pace this crisis demands.

The port is a core node connecting the international commercial trading and logistics industry chain, emphasizing the need to apply an expeditious data sharing scheme with the help of blockchain technology.

Alibaba partners with China’s biggest port operator

China’s biggest port operator, China Merchants Port, partners with Alibaba and its financial subsidiary, Ant Financial on development of blockchain based solution for international trade. China Merchant Port Group operates 50 ports in 26 countries.

The alliance will promote integration of blockchain technology in maritime logistics sector with the ultimate goal of developing world’s first blockchain-based digital port with an open collaboration network. This would in turn allow quicker exchange of data between the port as the core part of the international trade network and other companies and authorities involved in cross-border shipment.

The platform will allow different members of the supply chain including buyers, sellers, logistic companies, banks, customs, and tax officials to conduct contactless digital interactions with the port system in order to enable paperless facilitation of cargo passage through the port infrastructure. At this stage the collaboration will be focused on implementing innovations in Chinese ports.

The concept of the smart port seeks to combine a broad range of advanced technology ranging from artificial intelligence (AI), cloud computer, and blockchain technology to manage and track the movement of cargo. The use of data allows ports and shippers to improve the efficiency of their operations

How Blockchain technology can help solve supply chain

Problems within international supply chains caused severe shortage of PPE around the world. The problems which have caused this crisis are not new, and where silently causing inefficiencies which cost businesses around the world billions of dollars every year in the form of unnecessary administrative expenses, inefficient operations and lost business opportunities. Current crisis just magnified those problems and made modernisation and digitalisation of international supply chain more nascent than ever before.

As much as shipping transformed over the years, it is still extremely reliant on paper-based documentation. Bills of Lading, Certificates of Origin, Letters of Credit and many other crucial trade documents are still mostly issued in the paper format. They also often arrive late to the port of destination, delaying release of the cargo, quite often contain mistakes, and sometimes get lost, as the result stumbling the entire supply chain. According to World Bank, inefficient paper-based documentation costs businesses around the world more than $200 billion every year.

Despite those strikingly obvious inefficiencies of paper documentation for international trade, it is still considered to be the industry standard, largely due to lack of trust between different members of international supply chain. Businesses rely on wet stamps and standardised originals of documents in order to establish single source of truth in disputable situations which often arise in international trade.

Blockchain technology was developed with idea of solving exactly this type of issues. It allows to establish trust between multiple parties which might have very limited knowledge about each other, using cryptography, instead of trusted intermediaries to create immutable record of transactions.

Blockchain will be the key infrastructure to reshape international trade and logistics.

Jing Xiandong, chairman of Ant Financial (Alibaba Group)

Supply chains which rely on information stored on paper documentation or in siloed databases are extremely inflexible, lack visibility and cannot be quickly adapted to changing conditions during the crisis.

Blockchain technology can help to solve these issues by enabling digitalisation of core documents involved in international trade, establishing an immutable record of operations without the need for physical proof points and centralised validation. As the result, businesses would be able to manage their supply chains remotely, would have better visibility of the supply chain and would have better control over the entire procurement process, making it more adaptable to changing conditions during the crisis.

Digitalising title documents such as Bill of Lading would also enable automation of financial procedures involved in international trade with smart contracts. Having right of ownership for the cargo recorded on chain, would allow banking institutions to use smart contracts to automate escrow account and trade settlement procedures, significantly decreasing lead time required to organise cargo shipment. Origination of trade finance can also be performed in the paperless format, simplifying access to trade financing for new suppliers and as the result helping to decrease shortage of crucial products in import dependant countries.

Recording Quality Certificates and Certificates of Origin on the blockchain, would allow importers to get better understanding of product provenance and would help governments to tackle issue of quality documentation forgery.

It is still important to understand that blockchain technology is not a magic pill, it is not going to save the world and solve all problems within international supply chain overnight. There is number of pandemic related problems within international logistics, which unfortunately cannot be solved with digitalisation of documents or better administrative procedures.

Lack of trust is one of the biggest bottlenecks within global trade.

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