International Trade and Global Business

 

Trade Documentation: The Shift from Papers to Digits is On

One of the biggest costs of and impediments to more cross-border trade is the paperwork needs of the freight forward and customs broker industry.  One problem is a lot of shipments are big and heavy.  Then there’s the paperwork. A Netherlands shipping company said sending a container of avocados from India to Antwerp requires 200 communications involving 30 separate parties.  That adds a lot to the cost of guacamole.
 
Shippers and shoppers used to the speed of e-commerce deliveries—some can be made in hours if the goods are stored locally—will be chagrined by the unpredictability of sea shipments and floored by the costs of airfreight.  In some markets, it takes three times longer and costs four times more to send a 150-pound item by air than to buy an airline ticket for a person weighing the same amount.
 
The impact of digitizing all the paper could be huge, starting with the cost of transportation.  This savings should stimulate more trade and economic growth. Some economists believe that full digitization in Asia, for example, could increase the region’s exports by $257 billion a year, reducing transport times by 44% and costs by 31%.  Some experts think these reductions will have more of an impact than reducing the region’s remaining tariffs.  Succeed at both and a bigger trade boost is possible. If tariffs go up, as they are in the U.S., efficiencies on the logistics
side can help keep total trade costs in some sort of balance.
 
Trade and the documents needed to facilitate it require many moving parts.  Some goods need inspections before they leave port; others when they arrive at their destination.  Combatting terrorism involves other kinds of inspections. Some goods require licenses. Certain countries impose extra paperwork burdens and corresponding delays.
 
Technophobes beware
 
Freight forwarders and customs brokers, sometimes owned by the same company and sometimes separate, make good money off the arrangements.  They may account for a quarter of the logistics’ industry output, or close to a $1 trillion a year.  They’ve been among the most technophobic, still relying on faxes and telephones.  The bills of lading used in shipping are mainly still in paper form, little changed from the documents merchants issued in medieval Europe.
 
Banks, insurers and governments are starting to digitize the processes; and computers and Big Data engaged to do the heavy lifting. The Global Trade Connectivity Network will launch later this year as a joint venture between Hong Kong and Singapore, digitizing trade between both places.  The project is partly funded by several Chinese banks, raising hopes that the mainland will join the paperless trend.  Since China produces a seventh of the world’s exports, its participation would encourage other countries to do the same.  The U.S. is also headed in this direction, starting with the single window concept begun during the Obama administration.  The UN has been advocating a similar approach, especially in the developing world, since 2011. https://www.wto.org/english/tratop_e/tradfa_e/case_studies_e/escwa_e.pdf
 
The WTO is pushing single window as part of its trade facilitation initiative, which provides technical assistance to countries that request it.  Many countries, especially in Africa, don’t use computers to store data at ports of entry and exit, and inefficiencies including corruption are rife. 
 
Logistics companies such as UPS, FedEx and DHL have morphed into technology companies and have pushed the countries they do business in to embrace the digital revolution.  But without countries’ full participation, the current system will remain a hybrid of digits and papers. The sooner we all commit to a digital future, the faster we’ll get there.
 
 
 
                                                       

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