For over 5,000 years, ships have been used for hunting, trade, and national expansion. In 1998, Pole Star used satellite technology to track a vessel live on its journey for the first time. Fast forward to today where 90% of world trade travels by sea and vessel tracking is not just commonplace, but necessary, to ensure safety at sea and trade compliance.
Between 1998 and today, the pace of digital innovation within the maritime industry has skyrocketed. However, with maritime having such historical roots, the industry has struggled to move past its paper-based background.
Today, 8 months into the global Coronavirus pandemic, it seems that the current crisis has accelerated the rate of digital adoption, while also accentuating the problems that arise from existing outdated processes. The maritime supply chain has to keep moving, and understanding the routes and details of vessels has never been more important.
Why is maritime-based trade still ripe for improvement?
On average, a cross-border trade finance transaction for a single commodities cargo travelling by sea requires the exchange of approximately 36 documents and 240 copies. Currently, the cost of processing trade documents can equal as much as a fifth of those of shifting goods.
Shipping logistics are still rooted in archaic IT systems with large amounts of data-entry-type paperwork. Each data entry presents a potential point of failure, vulnerable to human error and illicit manipulation. Moreover, the maritime world has been facing a lack of cash flow by those who most need the assistance of digital processes.
This leaves corporates systematically challenged by procedural inefficiencies, alongside a lack of transparency and automation across the supply chain. These systemic inefficiencies lie in the multitude of players and documents involved in a single trade finance transaction, with such players ranging from major international banks to customers authorities, shippers, and insurers, among others. Because of this, shipment delays can last for days rather than hours while documents are processed manually.
The time for digitisation is now
The elimination of paper from the processing of trade finance transactions has the potential to reduce output time by two hours per transaction. When combined with the appropriate application of technology to compliance processes, this could cut compliance costs by 30 percent or more.
However, the benefits are not limited to speed, as trade digitisation is expected to provide several large-scale benefits too. By speeding up the process and minimising manual elements, the cost of transaction processing will be lowered, in turn reducing the cost of trade financing and enabling goods to move through supply chains faster and more cheaply. By 2035, the World Trade Organisation estimates that technological progress will have the largest impact on increasing gross domestic product (GDP) levels.
The success of global trade lies in the ability for all those involved to leverage technology to ensure sanctions compliance and appropriate due-diligence while lowering the cost of trade financing. Technological advances such as blockchain promise to reduce collateral, operational and compliance costs, automate verification, and digitise paper-based information management for financial intermediaries. Particularly for small businesses, this would cut costs and increase the profitability of financing trade, as well as the accessibility of trade financing which is often affected by AML and KYC regulation compliance.
Game-changing technologies
With the right technology, activities can be linked end-to-end across all parties involved in every transaction. Blockchain and trade platforms are frontrunners in the trade finance digitisation race, with the industry developing several new applications of these technologies in the past year.
Distributed Ledger Technology & Blockchain
Until recently, processing trade finance transactions, such as letters of credit, was mainly paper-based, manual, and time consuming. But, since the underlying trade flows were also slow, transactions were not impairing intermodal flows in a substantial manner. By leveraging blockchain technology, the velocity of financial and informational flows are better synchronised with the velocity of the physical transactions.
To this end, Pole Star partnered with global trade finance technology provider TradeIX, to bring our award-winning PurpleTRAC regulatory technologies to the Marco Polo Network.
Making PurpleTRAC available on the R3 Corda network will provide a single point solution for automated vessel sanctions screening, vessel tracking, and risk management. This solution will be fully customisable to any user’s risk requirements and provide automated data updates whilst ensuring rapid and accurate results. This partnership aims to enable the streamlining of maritime transactional processes, the securing of sensitive data, and allowing for an increase in transparency and visibility into global trade flows, which greatly reduces risk and creates new trigger points to finance trade and improve working capital.
Bridging the gap with trade platforms
Digitising and connecting global trade, supply chains, and trade finance has posed a challenge for years, with trade transactions involving multiple parties remaining complex, costly, risky, and slow due to the reliance on paper-based processes. However, trade platforms now present an opportunity to achieve a truly digital and connected global trade ecosystem.
Currently, leading financial institutions, corporates, industry bodies, and technology companies such as Pole Star must utilise multiple individual platforms, logging-in to their separate systems and performing isolated due diligence on their applications, legal agreements, and processes. As such, thousands across the supply chain upload confidential trade data to a multitude of third-party applications, risking its security and delaying the completion process even further.
Trade platforms now provide a one-stop-shop for the wide range of documentation and processes that are required to ship goods from one point to another. By connecting local and overseas partners, trade platforms also provide a single point of entry for documentation to make its way across the supply chain, breaking down barriers.
Find out more about how PurpleTRAC’s onboarding onto the NTP in 2019 has put us in a position to support the Singapore trade community in meeting maritime trade sanctions compliance requirements to ensure stable financing.
So, what comes next?
The road to fully digitised trade is not simple nor quick, but there have been a number of game-changing advancements over the past few years. As regulators crack down on the wider maritime industry and its associated supply chains, technology is essential to ensure that all processes are streamlined and properly recorded. While technology will never be able to replace the role that human beings play in this industry, it will allow global supply chains to flow more efficiently which is more crucial than ever in 2020.