If global supply chains are to gain the full benefit of this technology for managing payments and related data, all parties that play a role in global trade must be involved.
The last two years or so have been like a rollercoaster ride in the land of blockchain. Both existing and new players have been considering and evaluating the opportunities and the downsides of this important technological development.
The blockchain concept originally was developed as an efficient and secure way to manage and register transactions made with cryptocurrencies (for example, Bitcoin). Until now, it has mostly been of interest to individuals and financial institutions. But with its distributed-ledger technology (DLT) and smart contracts, blockchain has great potential to benefit all companies across the global supply chain—not just banks. This article will briefly explain what blockchain is, and then discuss why it is important for all parties involved in global trade transactions to adopt it.
DLT, smart contracts, and digital payments
Blockchain is a new computing infrastructure that emerged to power the Bitcoin digital currency application. In essence, blockchain provides the opportunity to have a connected, secure world with a distributed ledger that centralizes data for the involved parties and the ability to run automated checks and processes (called "smart code" or "smart contracts," depending on the legal implications of the code) that trigger all kinds of events (for example, payments).
The distributed-ledger technology component of blockchain allows each counterparty to have its own copy of the same ledger, similar to the way a Google doc allows multiple parties to view the same information at the same time. The database is built to be immutable, which means there is inherent security. Blockchain also allows for smart contracts to be coded and connected in such a way that the contract automatically executes an event if certain preconditions are met. An example would be a (near) real-time payment when goods are delivered.
Blockchain beyond banks
Banks that deal in trade finance—those that would, for example, give importers or exporters a loan to finance their global trading activities—are viewing blockchain as a technology that can provide these entities with a single view of the trade finance transactions in real time. But what about the other parties involved in trade finance? In addition to traditional banks, non-banking participants (for example, shipping companies, insurers of the goods, and credit-rating agencies, among others) and entities that fulfill the role of importers and/or exporters are all part of the trade finance chain. They already play a role in traditional payment methods, such as the commonly used letter of credit (L/C) described below.
We believe that for a trade finance blockchain to be successful, it requires more than just banks coming together. Instead, it requires a critical mass of organizations to adopt "straight-through processing" (STP), an automated workflow from the point when the loan is requested through to when the goods are received and the payment for the shipment is processed. Participation by non-banking participants is critical to its success. However, each will need an incentive to become part of a blockchain. Let's consider just a few of the potential participants and how they could benefit from involvement in blockchain.
Benefits for importers and exporters
Blockchain enables faster processing of transactions between and within parties. Consider the example of an international letter of credit. (Other trade finance products can benefit from blockchain technology, but this article will focus on the example of L/Cs.) In very simple terms, a letter of credit is a written guarantee by the buyer's or importer's bank (the "issuing bank") to the seller's or exporter's bank (the "advising bank") to pay an agreed amount for the goods when specified conditions, including time limits and the presentation of documents, have been met.
When the importer applies to its bank for a letter of credit, all kinds of checks (for example risk, compliance, and credit) are required before the L/C can be initiated. Once it has been initiated, the importer must then wait for the exporter's bank and, subsequently, the exporter to be informed. When the goods have been shipped, it could take up to five days for both the advising and issuing banks to complete their parts of the transaction; only then can the importer retrieve the documents required for picking up the shipment.
With blockchain, however, smart contracts perform the automated execution of the L/C application steps and checks, issuance and advising processes, document checking, execution of payments, and the registration of all these transactions on the blockchain. All of this can occur outside of business hours. The time required from initiation to payment can therefore be dramatically reduced. For example, because blockchain automates the document checking steps (paperless trade is a prerequisite), the time required from sending the documents to the exporter's bank until document retrieval by the importer—including all settlements and payments, if they are not deferred—can be reduced from as many as 10 days to only one hour.
This, of course, assumes no discrepancies that could still occur, depending on the setup of the blockchain. If there are discrepancies, they will be detected right after the documents are created—much sooner than in traditional processes—and all applicable participants will immediately be aware of them. In addition to the reduced transaction time, other benefits for importers and exporters include reduced bank fees (due to less manual activity on the part of the banks), reduced time for loan approval, and reduced risk of fraud.
Why others should join the blockchain
Blockchain initiatives hold great promise for non-banking participants and other organizations involved in international trade. Let us highlight some of those benefits, what the impact on their existing activities would be, and the possible role they could play in the future.
We'll start with the insurers of transported goods. Data is key for them; they use it, for example, to determine the risk involved in a transaction and the associated pricing of insurance premiums. As a consequence of the blockchain's distributed ledger, all participants involved have insight into all validated trade finance data. This would make a wealth of information available to insurers, allowing them to conduct a deeper analysis and make better decisions around the type of insurance product to be offered and at what premium. In addition, the information would be available in near real time—even while the transaction is still ongoing.
So with blockchain technology, insurers could obtain information much faster and the data would be more accurate, thus helping them to enhance their offerings to clients and reduce their own risk. Furthermore, blockchain technology enables faster processing between and within parties (for example, document checking), which reduces the duration of an insurance policy.
Some of the benefits for insurers are also applicable to credit-rating agencies. For example, if blockchain makes data about importers and exporters more accurate as well as more widely available in near real time, then credit-rating agencies will be able to create more accurate models, thereby enhancing their ability to operate in the trade finance chain. However, because data is stored on the blockchain in a distributed ledger, the method of retrieving data and making it available to clients without conversion would no longer be a unique selling point for the credit-rating agencies. Instead, they will have to focus on their ability not just to retrieve data but also to enrich or convert it to useful information for their clients. In other words, they'll need to rethink their commercial models and consider where they can add value with the new data that becomes available through blockchain.
Currently, credit-rating agencies measure the creditworthiness of individuals and corporations based on historical records related to transactions, financial behavior, and other factors. With blockchain, they could combine proprietary data on the financial history of the individual or entity with the aggregated import/export data now made available on the blockchain. This would create the opportunity to draw insights related to the type and concentration of deals, which customers are seeking what types of deals, what buyers are looking for from their suppliers, and related analytics. Right now this data is is not always or not completely available; with blockchain, it would be available to all intermediaries (on a private, permissioned blockchain if the parties prefer). In short, combining private credit-rating data with the blockchain data could create a powerful revenue stream for credit-rating agencies. This could also take some of the pressure off of shipping and logistics companies to provide this data.
Get ready for the future
In this article we've highlighted how importers and exporters, insurers, and credit-rating agencies could benefit from blockchain technology. They are not the only ones, of course. Blockchain would allow any participant in the value chain—not just those mentioned above, but also shipping companies and related logistics service providers, among others—to share a single view of the financing around a shipment.
In fact, many parties that are interested in exploring the benefits of blockchain have moved in the past year from the "thinking and learning about it" phase to the "experimenting with it" phase. All kinds of questions have come up, such as (to name just a few examples): Who should be involved? What will their role be? How are we going to make money? Not all questions have been answered yet; a lot depends on the role existing parties want to play in the future trade finance chain of activities as well as on the incentives they have to participate in blockchain.
There are challenges to be dealt with, too, such as the need to implement paperless trade, issues of data privacy, and how to get all members of a supply chain to participate. Most of the trade finance-related blockchain pilots today are being run by banks, with limited outside participants. The problem with that approach is that banks will only get their own networks to join, limiting the value when other participants are needed for the redesign and adoption of an existing process and product.
All in all, though, huge opportunities and benefits can be achieved if all parties get involved. So for banks, non-banking participants, and other companies that are considering blockchain, the benefits are clear. Luckily it's not too late to start thinking about their future and how they can join the blockchain revolution.
Residents and businesses along the Florida panhandle today are keeping a close eye on Tropical Storm Helene, which is forecasted to strengthen into a major hurricane by the time it strikes the northeast Gulf Coast on Thursday.
Hurricane and storm surge watches are already in effect for that area, which could see heavy rain and flash flooding across portions of Florida, the Southeast U.S., Southern Appalachians, and the Tennessee Valley, according to predictions from the National Hurricane Center.
The storm would come a month after Hurricane Debby delivered drenching rainfall for days over Florida in August and after Hurricane Beryl hit Houston in July, knocking out power across the region.
As Helene continues to gather strength from the warm waters of the Gulf of Mexico, experts are warning that the storm’s impacts could include the Port of New Orleans, agricultural operations throughout the Southeast, and additional citrus and fruit farming business in Florida, according to a report from Everstream Analytics’ chief meteorologist Jon Davis.
From a supply chain perspective, additional disruptions could include rail and road transportation stoppages, closures of interstate highways I-10 and I-75, widespread power outages, and shutdowns of offshore energy operations in the eastern portion of the Gulf of Mexico, Davis said.
As the third potential hurricane to hit the area within as many months, the arrival of Helene shows that extreme weather events aren’t just anomalies, but rather they’re the new normal for shipping companies and port authorities, according to Frank Kenney, Director of Industry Strategy at the technology consulting firm Cleo.
To cope with that constant battering, businesses need to adopt a new mindset, he said. “The only way to keep supply chains running smoothly is to build resilience into every aspect of operations. This starts with diversifying logistics strategies. If a shipper is dependent on a single route or port, they’re setting themself up for trouble. Instead, it’s crucial to have multiple backup routes and options ready to deploy when the unexpected happens,” Kenney said.
Following that strategy, inland ports such as Savannah and Macon, Georgia, will likely gain importance in coming years since their locations offer proximity to ocean ports while also providing access to major highways and some protection from coastal flooding. “In short, the storm isn’t going away, but by embracing diversification, leveraging technology, and ensuring supply chain visibility, U.S. ports and shipping companies can stay ahead of the curve. The companies that prepare for these challenges now will be the ones that continue to thrive, no matter how extreme weather events rock the boat," Kenney said.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”