OPINION: Maintaining trade during the current global pandemic has been the greatest test of international supply chain resilience since the Second World War.
International trade has been forced to operate in an environment where there is a near perfect storm of Covid-19 lockdowns, quarantines, illness, staff shortages and reduced freight capacity, while at the same time consumer demand for online and cross-border purchases is at an all-time high.
Mark Baker/AP
Containers are loaded on to a ship for export at Lyttelton Port near Christchurch. Digital trade will drive fundamental changes in trade and can unlock major economic gains across the supply chain.
The result has been a connectivity crisis that is threatening to worsen if we cannot adapt quickly.
On the one hand, fast and reliable internet at home, and on mobile, means consumers can order goods and pay for them more easily than ever before. On the other hand, disruption caused by the Covid pandemic has placed unprecedented pressure on the ability of supply chains to perform their most fundamental job: to connect goods to their purchasers.
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Some of these pressures are more readily visible than others. For example, earlier this year, shipping schedule reliability dropped from above 80 per cent before the pandemic, to a historic low of 6 per cent.
This month, a German think tank warned that up to 5 per cent of global freight capacity was being held up in China following a recent Covid-19 outbreak at Yantian port – the country’s largest container terminal.
International trade is a complex ecosystem comprising government regulations, multilateral interstate agreements, currencies, economies, legal systems, transport infrastructure, and markets – to name a few. It is also an ecosystem that is being indelibly marked by the current global pandemic and the health responses to it.
Preparing for a post-pandemic world where trade can resume to its fullest extent will be an exercise in both optimism and an unwavering dedication to efficiency.
But is there room to streamline an industry that has for decades – if not centuries – ruthlessly maintained the thinnest margins of error?
While a major driver of the connectivity crisis is reduced resource to produce, pack, send, transport and deliver goods to meet demand, what is less widely understood is that even when a ship carrying cargo to capacity, arrives on time at its intended port with the necessary levels of human resource available, that ship may still find itself unable to offload its containers for some length of time.
It’s not unusual to hear of businesses having stock that has arrived onshore but is “stuck at the port”, or to find that in ports all over Asia, goods are sitting in fully-stocked containers, with ships at the ready, but with little hope of leaving for their intended destination.
The reason? The speed of information flow.
Running parallel to the transportation of goods are also factors like the transportation of the necessary paperwork to release goods. To put it into context, a single transaction typically requires the collaboration of over 20 entities to produce 10 to 20 documents, and the exchange of approximately 5000 data field exchanges, covering areas such as compliance, operations management, trade data, commercial contracts and so on.
The international trade ecosystem is a fast-moving, high-risk, high-cost environment, which only works when each individual party has the ability to trust and verify each piece of information along the chain in a timely manner.
The connectivity of sensitive paperwork and its destination relies on the security, speed and reliability of courier and airfreight services, often travelling on passenger airlines. Covid-19 has seen passenger planes around the world grounded and delayed, highlighting the inefficiencies of relying on this system for global trade. It’s higher cost and higher risk.
In a post-pandemic world, where no player along the supply chain has been spared from experiencing costs and disruption as a result of Covid-19, values like trust, certainty and security will be what everyone looks for.
Over the past few years, the technology behind security processes and open digital trade systems has come on in leaps and bounds, with resulting gains in trade tech solutions. It may seem like a tall order to expect open systems that enable efficient digital interoperability between the vast ecosystem of players to also reliably protect sensitive data, but the evolution of blockchain technology has changed the landscape.
Operating in this new frontier of trade tech, developing and continuously improving a fully integrated trade platform, my team at TradeWindow has experienced firsthand the benefits of going digital, and the existing roadblocks that need to be cleared to rebuild supply chain resilience.
Exporters, importers, freight forwarders, and customs brokers we are working with across dairy, meat, horticulture, seafood, timber, consumer products, manufacturing, and logistics sectors are reporting productivity gains and lowering costs by reducing human time and error, improved connectivity and increased transparency that comes from open systems and secure data access, and the ability to forecast activity better than ever before as a result of shifting to trade tech.
In 2019, global trade amounted to US$18.9 trillion, with supply chain costs estimated to be around US$2.8 trillion. Within the trade tech market, it is estimated that a full shift to digital trade solutions alone could reduce trade costs by 14.3 per cent and boost global trade by up to US$1 trillion per year. However, getting to that point requires a global approach: scale and inter-governmental agreements.
The New Zealand Government has expressed a desire to operationalise trade agreements such as DEPA to drive digital trade initiatives, and for trade agreements to require open systems that allow all permissioned parties entry into the digital trade system.
This is a step in the right direction, but we need more and we need it faster from governments around the world, in order to achieve the kind of scale needed to shift the dial on connectivity.
To put things into perspective, at a recent trial, border clearance of New Zealand horticulture produce to Taiwan was reduced from two days to a matter of one or two hours. Now imagine that gain applied to the 5000-plus container ships in the global merchant fleet with a carrying capacity of 1.9 billion deadweight tonnes, responsible for shifting the 17 million shipping containers in circulation.
You start to build a picture of the possibilities for greater digitisation of international trade in a post-pandemic world.
AJ Smith is the chief executive of TradeWindow.
