Blockchain Can Give Trade in Asia-Pacific a Tremendous Boost

The ongoing geopolitical shift from Western power strongholds towards the East is dramatically reshaping the global political dynamic. Behind this political power play are the accompanying economic variables which have thrust Asia into the limelight. With the Asia-Pacific region in many ways defying the slowdown fears emanating from the ongoing tariff turbulence, the focus is shifting towards strategies designed to make trade more efficient, but simultaneously cost effective.

Mirroring trends across corporate multinationals that are bent on shaving costs, Asia is undergoing a similar transformation thanks to the Chinese Belt and Road Initiative (BRI). The goal of this entire plan is to bring greater efficiencies to trade by developing infrastructure projects intended to enhance trade cooperation and collaboration. Between the overland road and rail routes (belt) and maritime routes (road), China hopes to resurrect the former glory of the Silk Road.  

However, infrastructure investment alone will not be enough to support burgeoning commodity demand that is expected to accompany the region’s growth.  Technology will ultimately play an integral role in facilitating the forthcoming regional growth boom, and the commodity business is among its first targets.

Bringing Greater Efficiencies to Regional Commodity Trading

As one of the most important destinations for global commodities and an economy that thrives on exports, China’s, and hence the regions interests, are likewise dependent on ease of access to other markets and seamless transfers.  Yet, that does not mean trade is not without its hindrances and barriers. Thankfully, technology is helping to fill the efficiency gaps where traditional trade processes fall short.

Maritime shipping and transport accounts for approximately 80% of all global trade (and 70% by total value), therefore positioning it as a critical juncture for the global economy.  One of the most valuable routes is via the Indian Ocean, which sees the transport of approximately one-third of all global commerce and about half of the world’s shipping container traffic. Despite its important role, however, maritime shipping stands out as one of the biggest global tech laggards. Most transaction records remain paper-based despite the proliferation of digitization across other major global economic arteries.  

Digitization in this role can be used to fight counterfeiting, time wasted, lost productivity, and outright manipulation that can occur from physical documentation.  Efforts to restore lost documentation and retrieval of documentation in the case of misplaced goods also drains efficiency from this vital trade channel. Nevertheless, there are signs that the tides are slowly starting to change for the industry, especially in the commodity shipping space.

Brisbane-based CommChain is working to connect bulk commodity producers and end users through blockchain to build a more immutable record-keeping system that improves end-to-end transparency and cost-effectiveness. The digital chain of custody will not only help cut down on fraud and counterfeiting, but also add accountability and security to the entire process of commodity shipments. Most importantly, it will cut out the cumbersome paperwork processes for bills of lading, custom authorizations, and other vital documentation that is usually transferred physically between parties.

CommChain has partnered with Japanese trading and investment companies Sojitz and Marubeni, each of which has significant interests in the Australian commodities sector.  

“By joining CommChain, we are convinced that blockchain technology will make a major change in the existing trading business, much sooner than expected,” said Takemura Takayoshi from Marubeni.

From activities in coking coal, CommChain says that it has uncovered multiple areas for its Japanese partners to leverage its blockchain technology for the purpose of ending needless redundancies and paperwork which only hamper supply chain efficiency. This is especially relevant when considering Japan is the destination for $18.9 billion of Australian iron ore exports annually alongside 32% of the country’s coal shipments and 12% of total copper ore exports.

Other companies are focused on the container shipping industry which is also facing a need for greater technological influences.  Take, for instance, SaaS platform ContainerChain which is designed to track shipping containers across all their different transfers.  When considering that antiquated paperwork accounts for billions of dollars of industry expenses, the case for digitizing shipping logistics and documentation is the immense savings and productivity gains that are achievable when compared to existing shipping overheads.  

Given WiseTech’s acquisition of ContainerChain, and CommChain’s recent launch, investors are seeing high growth potential at the intersection of technology-enabled tracking, trade financing and contracting in the shipping sector, and are paying a premium to get a piece of the action.

The Eastern Energy Dynamic Ready For Upheaval

The Asia-Pacific (APAC) region is forecast to contain 4 of the 10 largest global economies by 2030 according to projections published London-based Standard Chartered.  However, aside from forecasts, the current fundamentals indicate that APAC is accounting for a substantial portion of all commodity demand growth, especially as emerging economies like India expand rapidly.  After experiencing a growth rate of nearly 8% per year, India is poised to overtake Russia as the third largest global energy consumer following China and the United States.

Data published by the US Energy Information Agency underscores this point, with Asia accounting for nearly 42% of all global energy as of the end of 2016.  A substantial portion of this region’s needs are derived from coal, accounting for nearly 50% of all energy consumed, in large part due to policy.  Yet, that has not dampened demand growth for other energy forms such as oil and natural gas. One of the major impediments to satisfying this insatiable thirst for energy is the paperwork involved, especially for trade finance.

Between securing letters of credit from banks and financial institutions, insuring commodity shipments, and all the other related paperwork, the administrative costs incurred for shipping goods alone is enormous.  According to Maersk’s Managing Director of South Asia, Steve Felder, these processes are estimated to cost approximately a fifth of the value of goods shipped. One of the main contributors is the wasted time and effort attributed to paper-based processes. According to the United Nations, the digitization of all trade-related paperwork could see a $257 billion increase in annual exports from Asia-Pacific countries.

With a goal of upending the existing trading framework, Komgo is one of the many blockchain initiatives that is bent on end-to-end optimization of commodity trade finance.  One of its primary goals involves refreshing the unreliable processes that dominate modern logistics, notably the paperwork. By building an interoperable chain that connects often disparate stakeholders across a supply chain, Komgo furnishes commodities traders with unrivaled communication designed to cut down on the number of hands physical documents must pass through.

Apart from reducing paperwork times and redundancies, privacy features ensure that only those parties requiring information can access it, enabling Komgo to avoid similar concerns that have hamstrung progress for projects like IBM and Maersk’s TradeLens solution.  Furthermore, the partnership with Vakt, a blockchain-based energy exchange that is designed to handle post-trade management will help improve efficiency for what remains a largely analog process.

Accelerating Asia-Pacific’s Growth Prospects

Greater digitization efforts, especially those championed by blockchain, will undoubtedly reshape the global trade environment. However, nowhere is the promise of greater digitization more relevant than the Asia-Pacific economies which are playing a growing role in global growth momentum. As the UN statistics show, the region could greatly enhance its export abilities and trade results simply from the removal of paper from the process.  

Apart from the near-term benefits of automating sluggish physical processes that can be entirely digitized, these new technologies are intended to cut down times, increase transparency, all while improving accountability. With these goals in mind, the tools needed to restructure traditionally tech-resistant industries are not only emerging but also simultaneously demonstrating their efficacy for resolving one of the biggest bottlenecks that is hamstringing trade growth.