The Blockchain Trade hype
There seems to be no end to the Blockchain initiatives that are popping up these days. The last week I have come across the 2 following stories:
* Standard Chartered and Siemens pilot blockchain-based trade finance guarantees in UAE (1)
* A day to remember: The first ever blockchain-based CargoX Smart B/L™ has successfully completed its historic mission during a trial shipment from China to Europe (2)
(I have commented upon that one in the new issue of DCWorld (July/August 2018)
In addition the we.trade initiative should be mentioned. More information is available here:
https://we-trade.com/
we.trade is an initiative taken by banks, allowing buyers and sellers access to the we.trade platform offering Trade Finance’ish products (e.g. we.trade BPU and BEU Financing).
The purpose of this article is not to go into details with the individual platform - but rather to discuss if (and why) Blockchain is the technology to (finally) make trade electronic.
For starters it is fair to say that Blockchain as such does not offer anything - from a technology perspective - that cannot be done using another technology platform. However, blockchain has a fundamentally different approach and philosophy compared to previous attempts: It does not rely on a central database where all data and transactions are stored. It is a distributed ledger, in which there is no central administrator or centralized data storage. For example, when Bolero wanted to make the traditional bill of lading electronic, they created the Title Registry (3), which was a central database containing information on all the transactions. CargoX Smart B/L™ is based on Blockchain and is decentralised. This is most likely one reason why we.trade has come to life. Is it created by 9 banks - that - by definition - is competitors. However, as the (transaction specific) data is not stored centrally - banks can see the benefits without the risk that customer data is shared with other banks.
The good question is if these Blockchain initiatives will finally succeed. No doubt there is not one answer covering all of them. It has always been a truth that there is no faith determining if a new system to support trade will prevail. Basically, it comes down two main factors: Whether or not the system solves a real problem for the users, and whether the relevant parties are prepared to push for the system to succeed. Of course, there are others that may be relevant – but these are the main ones.
Looking at the 3 systems mentioned above it seems that all potentially solve real problems; all of which relates to the elimination of paper documents. Whether the relevant parties are prepared to push for the system to succeed is more difficult to say. However, in that respect the we.trade platform seems solid. As mentioned above the we.trade platform is created by 9 European bank, who own an equal share of the we.trade consortium. This means that each bank has made an investment, that they (reasonably) expect will pay out at some point in time. This is likely to increase their incentive to ensure that the platform will fly.
The above said, it is important to understand the new Blockchain initiatives face the same challenges as other new platforms notbased on the Blockchain technology. Some of the main challenges are:
* The legal basis being immature hence a new legal and contractual basis must be established.
For example, bills of lading rely on a well-tested legal framework, that will not necessarily apply to electronic bills of lading. Likewise, practically all LCs are issued based on UCP 600, and those rules may not be appropriate for a product like the we.trade BPU (4).
* Habits i.e., many buyers and sellers inclined to do business as usual.
Both the traditional bill of lading and the LC are old and well-tested instruments that has survived the test of time. The means that many exporters and importers are comfortable with them (alone or in combination). Changes to such habits simply take time and may not be based on facts.
* All parties must sign up to the same platform.
This means that it is not likely, that it is the fact that the platform is based on Blockchain that will be the decisive factor, but rather how the platform is developed, regulated and marketed. In other words: The same elements that always apply.
-------
(3) http://www.bolero.net/home/rulebook-and-title-registry/
(4) Which is why a ”we.trade Rulebook” has been drafted.