Andrew Raymond
Will China follow India’s lead in fast-tracking trade digitisation?
asks Andrew Raymond, chief executive of Bolero International
When the Indian government fast-tracked the use of digitised bills of lading back in April, it was a sign that the Covid-19 pandemic is forcing through change in global trade operations. The government recognised digitisation of essential trade documentation was one of the most important steps it could take to eliminate the severe problem of bottlenecks in its ports at the height of the virus pandemic.
Interruption to the flow of paper documents threatened (and continues to threaten) many businesses engaged in international trade. Paper bills of lading cannot easily be couriered or processed because of continuing social distancing requirements and the fear they may spread the virus, which adds hugely to the delays they cause. Even before the virus outbreak, cargoes were stuck in ports incurring demurrage penalties as they awaited the arrival and processing of bills of lading. Without these documents, virtually nothing moves in a port and parties don’t get paid. The Indian authorities acted because it takes more than 11 hours of human contact to complete a paper-based transaction in one of their ports.
With an estimated four billion paper trade documents in circulation around the globe, the potential for bottlenecks remains huge. Yet although the Indian decision was a response to a particular event, it was also part of a wider strategy to upgrade and digitise India’s ports, driven by the Indian Port Association, an autonomous body attached to the Shipping Ministry. In addition, some of the country’s largest exporters were already using electronic bills of lading in significant trade transactions, making the switch to digital documents less intimidating.
The question now is whether, with global trade slowly recovering, China will follow suit. The country is investing large amounts of capital in 5G smart ports that will use automation on a massive scale, but as yet there is no final word on trade document digitisation, even though the country’s importers and exporters are very savvy when it comes to such technology.
However, some of the top Chinese banks have been using electronic trade presentation platforms for several years. They see how the use of electronic bills of lading and letters of credit, allied to straight-through processing technology radically reduces turnaround times for all parties in a transaction, while hugely improving security and operational efficiency. Instead of many days, a transaction using electronic bills of lading achieves completion within hours. On the right platform, these transactions are also far more secure and are protected by recognised bodies of law, such as English common law.
It is also positive that the Chinese banking regulator, recognising that trade still faces “relatively large difficulties”, said it will encourage banks to offer more trade finance. The authorities in Hong Kong have also been pushing for digitisation in trade finance in order to achieve competitive advantage.
In any case, pressure for digitisation will inevitably build from the global supply chain. As trading networks become more complex and international, corporates are turning to banks and other facilitators for efficient financing and risk mitigation. The Chinese banking system, at $40trn in assets, now exceeds the Euro zone’s and America’s. Its banks are also reported to be looking farther afield for opportunities.
To enhance their attractiveness to corporates, mid-size Chinese banks, especially, need to adopt electronic document presentation portals so they can plug themselves into the global eco-system of organisations already using digitised trade documentation. That includes corporates, overseas banks, carriers and the entire eco-system of funders, service companies and innovators. Users are able to create, edit and manage letters of credit, electronic presentations and guarantees, as well as open account transactions and electronic bills of lading. Above all, the digitisation of bills of lading will speed up transactions, allowing exporters to be paid faster and importers to take possession of cargoes without costly delays.
The critical role of paperless trade systems in fostering recovery is recognised in the ten-point plan issued by Unctad (the United Nations Conference on Trade and Development), which makes their introduction a key priority. While the Chinese authorities may recognise this, they refrain from steering towards any particular approach to trade digitisation. Yet we can see that some of the country’s banks are already offering digitisation. Progress, however, needs to be faster.
The Covid-19 outbreak has stimulated new momentum in China’s digital economy, as did the SARS (Severe Acute Respiratory Syndrome) in 2003. In China, the world’s second largest economy, the surge in digitisation must include trade documentation.
Bolero International is a leading trade digitisation provider. Further information at www.bolero.net
