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Delivering Digitalisation: A Blockchain-enabled Supply Chain
03 August 2022
Louis Chan, Nicholas Fu
The global pandemic and the ensuing supply chain chaos have exposed the fact that the worldwide logistics industry does not have the transparency and traceability to make cross-border shipments sufficiently seamless and efficient. Most global businesses have accelerated their adoption of technology to get through the pandemic, and the hard-hit logistics industry has similarly embraced digital technologies to improve its resiliency.
The already stressed global supply chain has been further hit by the Russo-Ukrainian military conflict and mainland China’s renewed lockdowns. The country’s major seaports are under pressure and international freight prices remain high, shipping delays are frequent and vessel schedules are unreliable.
Container line schedule reliability slumped to 35.8% in 2021. Source: Seatrade
Ripple effects from the Russo-Ukrainian crisis have reshaped the international energy, commodity and logistics landscape, triggering the biggest global price shock in 50 years for goods ranging from natural gas to wheat and cotton and causing an unprecedented rerouting of trade around Russia and Ukraine.
Flights between North America and Asia take at least 3 hours longer to avoid Russian airspace and fly over Asia or the Arctic. Source: Bloomberg
To navigate the challenging international trade and logistics landscape, many have turned to technology. But while technologies are no stranger to global logistics players, the Covid-19 pandemic and the ensuing supply chain disruptions have exposed many vulnerabilities and raised doubts about globalisation. To solve the current bottlenecks and improve future resiliency, the logistics industry has to go beyond simple technology adoption and seek a coordinated innovation involving all supply chain stakeholders.
To accelerate the digital transformation of the shipping industry, Global Shipping Business Network (GSBN) has built a blockchain-enabled operating system designed to refine global trade, while also being committed to developing a suite of products designed to enhance global trade efficiency.
To discover how the data infrastructure can help build a modern and efficient global trade network and fill the US$2.5 trillion global trade finance gap, HKTDC Research talked to GSBN’s CEO, Bertrand Chen.
Bertrand Chen, Chief Executive of GSBN, an independent, not-for-profit
technology consortium committed to reimagining global trade.
Now or Never
Chen explains that the complexity of our global supply chain system makes it difficult to find a solution for all our supply chain issues, “The current disruptions are caused by two major faults, demand-supply mismatches and the inherently fragmented global supply chains following decades of globalisation.”
“The current supply chain bottlenecks around the world are a result of the demand-supply imbalances that have accumulated since the onset of the Covid-19 pandemic. Production and logistics have not yet caught up with the strongly recovering consumer demand and the rapid rise of e-commerce. There are additional problems such as a shortage of port workers and drivers, stockpiles of cargo at terminals, and factories and ports rendered inoperable due to renewed waves of infection and lockdowns.”
“The global pandemic has worsened the fragmentation of global production and supply chains. Coordination among different stakeholders becomes very difficult if not impossible when manufacturers and logistics players are under increasing strain.”
“Elements in the supply chain have to make the best production and logistics decisions they can based on information which can be incomplete or outdated. Owing to the so-called Bullwhip Effect – the distortion that travels upstream in the supply chain due to changing orders, which may be larger than expected – delays and uncertainties increase, leading to inventory increases, cash flow shortages, and further supply chain disruptions.”
These logistics issues have however given rise to wider adoption of digitalisation. “The Covid-19 crisis has accelerated the industry’s transformation from time-consuming paper-based information exchange to a more efficient, paperless, electronic exchange. But it is not enough,” Chen said.
Digitalisation should streamline logistics by enhancing traceability and visibility and thus improving the coordination between stakeholders. It should also provide a better environment for information exchange and real-time risk management.
“On the back of our blockchain-enabled Cargo Release application, we have curated a platform that offers a paperless and transparent solution connecting everyone involved at the port of import including shipping lines, consignees, their agents and terminals. So far, we have expanded the service to Europe with a pilot project ongoing in Rotterdam, the Netherlands, following successful deployments in Southeast Asia and mainland China,” Chen explained.
Cargo Release, one of GSBN’s suite of solutions that has already been rolled out in Southeast Asia, mainland China and the Netherlands, enables customers to eliminate manual processes and remove any need for physical exchanges of paper documentation for release of cargo. “Taking all the physical hassle out of the customs clearance, our application in Shanghai for example, has reduced the overall process time from 2 to 3 days to only 1 to 2 hours. Our digital documents are not only accepted but are preferred as proof of shipment in case of disputes,” Chen recounted.
“For decision makers in the industry, our application not only facilitates collaboration among stakeholders, but also creates greater efficiency and resilience, since paper documentation takes longer to process and has a much higher degree of error.”
“Cargo Release boasts a secure blockchain-enabled data exchange platform which allows us to create bridges to new markets and new partners including banks, fintech companies and other consortia,” Chen said.
A blockchain-enabled data exchange platform is easy to connect to new business partners.
Visibility Means Better Financing
Chen believes financial institutions are generally receptive to the adoption of blockchain technology, since many banks have initiated blockchain-enabled projects in the past few years.
Unlike other blockchain-empowered trade finance offers, GSBN’s Trade Finance solutions focus more on the validation process, where the traditional verification method requires significant resources. Chen says: “We use blockchain to simplify the management of trusted information and reduce the requirement for information validation across industries. In particular, we aim to help financial institutions mitigate the fraud risk and solve the problem of double financing so that they will be more willing to finance international trade for SMEs.”
“Traditional banks are reluctant to finance SMEs as the verification costs are high but the returns are relatively small, and there is a greater risk of default. But there is a higher level of transparency when everything related to the shipments is encrypted in a blockchain. Financial institutions can better assess the potential risks of fraud and so they become more willing to finance SMEs and can offer improved loan terms and conditions.”
“Double financing occurs when the counterparty commits fraud by engaging with multiple financial providers to secure financing against the same underlying asset using the same set of documents. This will become inconceivable once the whole logistics industry adopts blockchain, which features unique representation of each digital asset,” Chen explained.
From Intra-industry to Inter-industry Coordination
Incorporated in Hong Kong, GSBN was founded by eight global logistics firms, with specialities ranging from shipping lines to terminal operators. Chen expects to strengthen the existing logistics network with additional participants from the financial sector.
In September 2021, three major banks (Bank of China (Hong Kong), DBS Bank, The Hong Kong and Shanghai Banking Corporation Limited) in Hong Kong joined the blockchain consortium to form a Trade Finance Advisory Group, aiming to facilitate efficient trade finance by helping partner institutions improve their existing processes, leveraging trusted digital data from supply chains, and providing better financing support for SMEs.
Banks and financial institutions are open to the use of blockchain technology in their trade finance businesses.
Following months of close collaboration with the Group’s partner institutions, the consortium has reached proofs-of-concepts (POC) for two trade finance products, Open Account and Letter of Credit, that harness trusted data direct from the shipping industry via GSBN. For Open Account, banks can directly request Bill of Lading data for the proof of shipment via a blockchain-enabled platform, while Letter of Credit enables banks to use an electronic Bill of Lading (eBL) application built on GSBN’s platform to acquire relevant information and instruct a title transfer upon authorisation.
“Trade finance is becoming increasingly critical to international trade. As two of the leading global financial centres in Asia, Hong Kong and Singapore house many international banks and financial institutions. These POCs are critical steps towards closing the global trade finance gap, and we are working hard to expand our financial network and innovate for trade finance efficiency.”
“We will conduct further pilot testing in the coming months to perfect our trade finance products before we pitch to more financial institutions. Having assembled a group of parties for user acceptance testing (UAT), we are confident we can convince the financial sector of the value of handling trade and trade financing with the increased visibility of blockchain-enabled technology.”
“We are also exploring the use of blockchain in other areas of trade. For example, we are looking at streamlining the shipping of dangerous goods in which several documents such as a Dangerous Goods Request (DGR)[1], a Material Safety Data Sheet (MSDS)[2] and a Dangerous Goods Declaration (DGD)[3] are required. Through the use of blockchain, we plan to make the whole process paperless while facilitating the data verification process across industries and borders.”
“Other ongoing projects concern the efficiency of information exchange, which is essential for supply chain resiliency. Without a systematic, standardised and recognised information exchange platform, the time needed to connect the downstream and upstream players in the supply chain remains tremendous. We believe that curating a more simplified framework to boost the quality of data exchange can tackle this problem.”
Looking ahead, Chen sees technology continue to evolve and reshape the global logistics and supply chains, “Technology is a one-way road. Businesses will continue to look for new technology solutions such as IoT, artificial intelligence, and confidential computing to further strengthen the digital transformation of the industry, with the help of technology firms such as GSBN.”
[1] Dangerous Goods Request (DGR): A list of dangerous goods to be shipped given to the carrier for acceptance.
[2] Material Safety Data Sheet (MSDS): It contains detailed information of the goods listed in the DGR.
[3] Dangerous Goods Declaration (DGD): A list of dangerous goods and the corresponding specific packaging, identification marks and labels.
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