Digitisation of global trade could support economic rebounds after global shocks

By Henrik Hvid Jensen

May 1, 2020

Hundreds of shipping containers are seen stacked at a pier at the Port of New York and New Jersey in Elizabeth, New Jersey, U.S., March 30, 2020. Image: REUTERS/Mike Segar

The economic effect of the current global COVID-19 lockdown will be severe. An essential focus for supporting the economic rebound is to invest in efforts to deepen economic integration and further lower trade costs.

Digitisation and the creation of specialised ecosystems will be the most efficient approaches to reducing trade cost on a global scale, benefiting all countries impacted by COVID-19.

The opportunity: swift relief at scale

Unlike national relief packages, investment in global trade digitisation initiatives do not have a natural sponsor. However, the incumbents in the logistic industry can act quickly and as one to support the rebound of the global economy after COVID-19. (For example, the top five container carriers — APM-Maersk, MSC, COSCO, CMG-CGM and Hapaq Lloyd account for two-thirds of containerised trade that again covers 60% of seaborne trade). Furthermore, as the single group of actors who would benefit most, they could quickly see a reduction in cost, fewer barriers for innovation and an increase in the global logistic market.

Importantly, the required investment will be based on traditional return on investment (ROI) calculations, and not financed by the taxpayers. Digitisation of global trade will be a gift that keeps on giving, both to the incumbents as well as to the societies’ wealth at every corner of the world.

The change: efficient, resilient digital ecosystems

Five digital networks, dubbed logistic internets by some professionals, lay the foundation for global trade digitisation. Imagining these systems as common goods, like the Internet, increases the industry’s innovative capacity, reduces cost and increases the capacity for global trade. Just like a homepage can be accessed by any browser globally, actors connected to the logistic internets can immediately share information, identities, trade documents and events without the hassle of building one-to-one connections. Significantly taking cost out of establishing digital connections and increase trust in that investment in innovative digital solutions can be used globally. The Logistic Internets support national policy frameworks, and are therefore independent of national jurisdictions

Of these, one of the most important Logistic Internets to develop include digital global trade identity, allowing for systems that authenticate digital identity. Knowing the identity of the entity you interact with and who has digitally signed a document is foundational in any digital interaction.

Another key Logistic Internet to develop is customs cross border interoperability (CCBI), providing for the cross-border electronic data exchanges of permits, licenses, etc. The World Trade Organisation (WTO) predicts that trade could grow yearly by 1.8 to 2 percentage points more until 2030 as a result of falling trade costs, amounting to a cumulative growth of 31 to 34 percentage points over 15 years. While the CCBI will not account for all falling trade cost, digitisation will be an important contributor.

Gains from the digitalization of customs documentation
Gains from the digitalisation of customs documentation
Image: World Bank 2017 Data, World Trade Organisation Report 2018

There have already been many conferences, research efforts, standardisation initiatives and pilots that have identified a clear direction for each Logistic Internet. The next step is collaborative realisation, where the logistic industry invests to realise the foundation, giving long-term benefits for the industry as well as an acceleration of the post COVID-19 economic rebound. The foundation includes Open Source implementations, connectivity components and business models for offering Logistic Internet functionality. This will allow individual organisations to independently realise interoperable Logistic Internets within their sphere of interest. So, just like the traditional Internet looks like one Internet while it is really a network of independent networks, the Logistic Internets will look like a coherent network, while they are actually implemented as a network of networks.

The challenge: seizing the opportunity to collaborate

If we start now, it is realistic to have the two most important Logistic Internets ready for production within one year. Which means that already in year two, we will see the Logistic Internets’ contribution to the global post COVID-19 economic rebound. WTO predicts that the decline in trade costs can be especially beneficial for SMEs and firms from developing countries, those expected to be hit hardest by the COVID-19 economic crisis. The WTO foresees that developing countries’ share in global trade could grow from 46% in 2015 to 57% by 2030.

The post COVID-19 economic rebound is a global responsibility and the realisation should be a global collaborative effort.

To be sure, collaboration will be key. A major challenge for a global trade multi stakeholder initiative is the formation of the collaborative business structures where fierce competitors work together to realise such ecosystem-solutions. Who pays for what? Who decides what? Who is accountable for what? Who takes the credit? How do you get out?

Another challenge will be the focus on the ultimate goal: shared control and responsibility. By realising the Five Logistic Internets (as either a decentralised or distributed solution), control will not be held by a few central players, but by the whole. As a result, these ecosystems will enable a commercially, competitively and politically neutral digital foundation for global trade.

“Supply chain system issues – lack of interoperability, integrity, resilience, transparency – will be key to address in a world after COVID-19 as part of initiatives to restore global growth,” explains Nadia Hewett, Blockchain and Digital Currency Project Lead at the World Economic Forum. “The impact of distributed ledger technology to provide solutions to such issues will become more relevant and evident. Remember, blockchain technology enables a ‘shared truth’ and ‘I see what you see’. And trust is at the centre.”

Acceleration of the post COVID-19 economic rebound through 4IR-technologies is such an important task, the World Economic Forum accelerated the availability of the Redesigning Trust: Blockchain Deployment Toolkit. The toolkit contains frameworks, tools and resources critical for baking in resilience, integrity and interoperability in distributed supply chain systems.

The ROI is so attractive for the incumbents and the effort so important for the global economic rebound, that immediate actions should be taken to realise it. Now is the time to invest to accelerate the post COVID-19 economic rebound, with business benefits that continues to give for years to come.

Henrik Hvid Jensen is a senior blockchain advisor for Trustworks.

This article is curated from the World Economic Forum.

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