By Ken Cottrill, Co-Founder and Research Principal
Traditional trade documents such as the Documentary Letter of Credit (LC) are in decline in cross-border commerce, so why are companies investing time and money in developing blockchain solutions that digitize them?
For example it was reported recently that global financial group BBVA used blockchain technology supplied by Wave to reduce the time taken to complete an international trade transaction from seven to 10 days to just 2.5 hours. The transaction involved the export of a shipment of tuna from Mexico to Spain, and payment was made using an LC issued by BBVA in Spain and processed by Bancomer in Mexico.
LCs have been around a long, long time. In international trade, an LC is basically a commitment by a bank on behalf of a buyer that payment will be made to the exporter provided that the terms and conditions are met, as verified through the presentation of all required documents.
The last phrase encapsulates the problems with LCs. The need to present documents to facilitate trade payments makes the process vulnerable to fraud and error. It’s also a relatively slow, expensive and unwieldy way to conduct business internationally.
Ocean shipping company Maersk estimates that the costs associated with trade documentation processing and administration represent up to one-fifth of the actual physical transportation costs. In 2014 Maersk looked at a simple shipment of refrigerated goods from East Africa to Europe, and found that the transaction involved some 30 people and organizations and more than 200 different interactions and communications between them.
By Pete Harris, Co-Founder and Research Principal
Welcome to the latest vendor update, curated by Chain Business Insights, in which we focus on recent significant news from the blockchain meets supply chain world. Usually, this update is for our clients only, but since we’re still in pilot mode, as it were, we’re making it free to all. Don’t get used to it! Also, if you are doing something that you feel merits inclusion, we want to hear from you, so please contact us.
In this roundup, we have news for you regarding BiTA, IBM, SAP, ShipChain and Sweetbridge:
This industry group is just months old and already it has an expanded mission and a new name to match. The Blockchain in Trucking Alliance is now the Blockchain in Transport Alliance, with a focus on “development of blockchain standards and education for the freight industry.” No biggie then.