Trust in trade – can it be restored?

Global trade is the lifeblood of the modern economy, yet trading across borders remains a complex affair reliant on paper documents that a 17th century trader would recognise. Can technology end the paper trail and restore trust in an industry fraught with risks?

Each enormous ship travelling in and out of the world’s ports represents mountains of paperwork and intense communication between buyers, sellers, banks and other trade participants. A single shipment can require more than 200 communications between 30 parties according to Maersk, the world’s biggest container-shipping line. These paper-based practices are expensive and subject to human error and delays – a small typo can reset the whole document process.

But there’s more at stake than inefficiencies and time lags.

“The exchange of physical trade documents allows unethical parties to abuse the system, causing major financial losses for suppliers and banks. There are various ways fraudsters commit crimes: by creating fake papers, multiplying copies of existing documents, circumventing sanctions or masking the identities of supply chain parties,” explains Lynn Ng, global head of Commodities, Food & Agriculture at ING.

This compels legitimate participants to adopt additional processes designed to filter out suspicious and fraudulent activity; and banks to employ an array of people in back offices, looking for discrepancies that invalidate payment claims in trade transactions.

“The cost of doing business in trade has increased exponentially as a result of the distrust in the trade system,” says Lynn.

So how can trade build trust?

Speak the same language

Digitising processes with technologies like blockchain and advanced analytics is a first step. With blockchain, there are significant improvements for all participants on the chain, including reduced fraud risk, lower costs, increased safety, and the ability to monitor the trade’s progress in real time.

But technology isn’t enough. Just like in human relationships, communication and transparency are key to developing trusting relationships, according to Lynn.

“First, systems should be able to communicate with each other regardless of the platforms or technology they’re based on. That’s why the International Chamber of Commerce’s Data Standards toolkit is an important development. The toolkit identifies close to 100 available standards, frameworks and initiatives that offer the potential to enable all parties in global supply chains to speak the same, universal language – regardless of the tools used to automate processes.”

Another point she makes is that digital records should be legally accepted and given the same status as their physical forms. Trade participants will be forced to convert electronic data into paper form unless everybody in the supply chain can access digital records.

“Lastly, while maintaining data privacy and confidentiality helps to ensure cybersecurity, it ironically also protects criminals. Regulators need to tweak the laws to enable trade participants to share information responsibly while keeping fraudsters out of the trade system.”

Open up

To ensure the wider adoption of digital trade, trade participants need to collaborate to ensure data can be exchanged securely, in a language that is common to the industry. New platforms such as Vakt, that aims to create a single source of truth for commodity transactions, and Komgo, which automates finance transactions, allowing banks, traders and other participants to transact in a secure environment, are good examples of progressive technologies born out of partnership.

Ultimately, building trust across borders takes collaboration and preparation. And in a global economy, trust is more important than ever.

Learn more about the latest digital developments in trade at 15:30 CET on Monday 10 October in the Sibos session on ‘bridging digital platforms: Is interoperability a pipe dream or possibility?’