A simple approach works
Digital supply chains reduce friction and cost versus paper-based equivalents.
Prima's platform delivers 100% digital supply chain visibility across all the various trade and compliance documents involved in cross-border trade.
See your supply chain as your exporting suppliers self-digitise their paperwork. Realise significant savings on spend via automated trade document checking, automated invoice approvals and optimising your working capital.
Why is digitizing trade difficult?
International trade is (very) broadly of three types:
· Bulk (eg: commodities)
· Containerized (eg: FMCG) and
· Services ("invisibles")
The usual focus of digitisation, or perhaps “digitalisation” more accurately, is the trade in physical goods and products whether bulk or in containers. There are global trade volumes of more than US$30trn each year in goods and every country in the world has physical goods going across its borders.
There is a lot of paperwork involved in the movement of goods and that paperwork is neither standardised nor usually digitised and some of the paperwork has to be provided physically.
This means that it is hard to use computers to make processes efficient. And that paperwork supports a variety of processes:
· Transferring physical possession of goods from one party to another (eg: bill of lading)
· Evidencing what is being shipped (eg: packing lists, inspection reports)
· Supporting ESG and trade compliance (eg: sourcing and supply chain maps, certificates)
· Regulatory and other filings at the borders (eg: export and import customs)
The amount of paperwork is only increasing as ESG compliance requirements come into effect. Whilst the data contained in the documents might be relatively standard, there is a wide variety of different templates, forms and systems involved and huge frictional costs emerge for participants.
Digitising / digitizing / digitalising / digitalizing are terms used interchangeably in this article. And digitising that trade paperwork would generate a $40bn per year in cost savings and increased trade flows according to McKinsey.
Digitising the bill of lading
Bulk trade (eg: oil, coal, grain etc) relies on financiers who rely upon the goods in transit as collateral. Trade often goes through intermediate traders and because the goods are, by definition, “commodities”, there is a ready market and market price for the goods in the event that one of the parties in the chain defaults.
Historically, banks have relied upon the “bill of lading” to secure their financing.
The bill of lading is a document of possession, meaning that the person who physically has the bill of lading is the person who is entitled to take possession of the cargo to which it relates. It is more complicated than that – but this is the principle. So, in bulk trades, there is a huge focus on who is holding the bill of lading and controlling the document. It is a “bearer” document that can be endorsed and traded, ideal for traders in the bulk commodity market looking for finance and the banks involved. Experts in this area can control the cargo via control over the bill of lading.
But this system presents practical difficulties because of the need to have the bill of lading move between parties, and the risk of fraud.
So industry and lawyers have got together to create the “digital bill of lading”, sometimes called the “eBL”. This is a computerised, digital version of this specific piece of paper and an excellent use case for blockchain. Investing all the characteristics of the “bill” into a digital record has required law changes, but English law is now over the line with the passing of the new Electronic Trade Documents Act in the UK.
Mckinsey believes that widespread adoption of the eBL will directly save industry US$6.5bn a year in costs – see here for their analysis.
So far, so good – but?
Digitalising (or digitalizing) the bill of lading can substantially help trade in bulk goods by removing the need for a physical document, but it makes little difference to trade in containerized products – like FMCG (fast-moving, consumer goods).
FMCG supply chains (>US$20trn per year) are different to bulk commodities:
· Buyers (importers) select their suppliers and place purchase orders.
· Suppliers (exporters) ship against the purchase orders directly to their customer (“point-to-point”).
· Often the customer (importer) arranges the transport itself using FOB or similar Incoterms, so the goods are in the hands of the importer’s agent early in the transport process.
The trust questions and financing for containerized trades are different to bulk commodities and are not particularly helped either way by using a digital bill of lading:
· Importers want reassurance that the exporter (their supplier) has put the right goods in the boxes in accordance with their purchase order.
· Exporters want reassurance that the importer (their customer) will pay.
· And banks want the same reassurance as the exporter because they typically ignore the value of goods in transit and focus on the likelihood that the importer will pay.
A simple solution
There are two obvious approaches to consider:
· Create standard templates that can be used round the world for each type of document – similar, in fact, to the initiatives around e-BLs.
· Give exporters a simple, standard way to convert their paperwork into data, whilst preserving the original image of each document – so that it is the data which is standardised and not the documents.
The first approach will work but will likely take many years to realise. It has taken approaching 10 years to develop a standard for one document (the electronic bill of lading). And this is only one transport method (ocean) when there are others (rail, truck, air) and even other transport document types (eg: AWB, CMR).
PrimaTrade: "see your supply chain"
Prima’s platform takes the second approach – and it works. Suppliers have all the paperwork that we need, so we get them to self-digitize their documents quickly and simply using specialist OCR within our secure portal.
Our clients achieve 100% digital supply chain visibility and our technology copes with 100s of different document types and formats – and our platform is implemented over-the-top of existing processes. Our approach matches industry intiatives to standardise the data rather than the documents - for example see the DCSA initiative: here.
Importing clients who introduce our technology to their exporting suppliers are quickly able to achieve 100% digital visibility of their supply chain, often without an initial IT project.
Data standards rather than document standards means effective solutions are here right now.
Our platform is live, proven and working today at scale already in global supply chains – see more about what we do: here.