Reimagining Cross-Border Trade through Blockchain

By Daniel Covarrubias, Ph.D.

International trade, a complex system of transactions, relationships, and regulations, is undergoing unprecedented changes fueled by Logistechs. These exponential technologies include the Internet of Things (IoT), artificial intelligence (AI), machine learning, predictive analytics, autonomous vehicles, augmented reality (AR), virtual reality (VR), automation, and Blockchain, among others. These technologies, each transformative in its own right, can converge to redefine the dynamics of cross-border trade, making it more streamlined, efficient, and transparent than ever before. Of these groundbreaking innovations, one stands out for its potential to profoundly transform the landscape of international trade – Blockchain. Blockchain, commonly associated with cryptocurrencies, extends far beyond finance. This article analyzes the transformative capacity of Blockchain in cross-border trade, offering a glimpse into a future where trade is more predictable, sustainable, and transparent from end to end.

At the recent TradeHub Summit, a logistics innovation event held this past week in Mexico City, marked by insightful discussions, groundbreaking concepts, and an undeniable sense of the imminent technological evolution in cross-border trade, I had the honor of leading a masterclass titled “Bridging Borders through Innovation: Unlocking the Future of Logistechs in Cross-Border Trade.” The class analyzed the game-changing role of Logistechs and how these exponential technologies are coming together to streamline international trade, thereby reshaping cross-border logistics processes. Understanding and leveraging these exponential technologies is vital for companies to thrive in this rapidly-evolving global trade environment. Amidst these discussions, Blockchain’s prospects and impacts emerged as an important topic, which led me to write this article to summarize my thoughts on the subject highlighting its transformative potential in cross-border trade.

Blockchain has evolved remarkably since its beginning as the backbone of Bitcoin and is now being utilized across various sectors, including supply chain management, healthcare, and international trade.

Samsung developed Cello Trust by integrating Samsung SDS’ blockchain technology and its logistics platform Cello. Cello Trust provides a tamper-proof and secure environment for all supply chain stages. Samsung states that this system can be incorporated into any part of a company’s supply chain – from production and distribution to sales and logistics. One element of Cello Trust is its ability to provide proof of origin by storing shipping data, such as import/export and customs clearance information, on the Blockchain, transparently disclosing a product’s origin and distribution journey to consumers and business partners. Additionally, Cello Trust uses Internet of Things (IoT) devices to monitor the status of temperature and humidity-sensitive shipments, with the status data accessible on the platform as well.

U.S. Customs and Border Protection (CBP) initiated a pilot project using blockchain technology to enhance its capacity to protect American businesses from intellectual property rights theft. In 2020 they completed a proof of concept demonstrating how Blockchain could safeguard intellectual property rights on American imports and sensitive information transmitted among multiple parties using a single, streamlined platform. CBP’s blockchain pilot facilitated secure and efficient data exchange with manufacturers, retailers, rights holders, and importers. This was made possible through a single access point in the Blockchain, resulting in fewer physical inspections and cost savings for companies participating in the system. That pilot was the first to test standards and specifications to facilitate blockchain interoperability using open, standardized approaches, contributing to the global standardization process.

Another critical case study once considered a prime example of Blockchain’s potential in international trade was IBM and Maersk’s venture, TradeLens. The platform was created to promote digitization in the global supply chain as an open and neutral industry platform. However, despite developing a qualified platform, TradeLens stumbled upon a critical challenge. It could not gain the necessary degree of industry-wide adoption, an essential element for this kind of initiative to succeed. As a result, TradeLens did not achieve the commercial viability needed to continue operating as a self-sustaining business, serving as a cautionary tale of the importance of broad cooperation between the private and public sectors to promote end-to-end adoption rates when implementing Blockchain in global trade.

The following are five key recommendations I believe are critical and must be met to ensure any implementation of Blockchain in cross-border trade:

  1. Adoption of Open-Source Systems: Blockchain must be an open-source, public system collaboratively developed by governments and industry representatives worldwide. This approach is not just about creating a universally accepted system; it’s about fostering trust and transparency. Developing an open-source blockchain ensures that a single entity does not own or control the technology. This open-access system promotes collaborative development, thereby prompting innovation and ensuring that the technology remains free from manipulation. By implementing a standardized, global blockchain solution, cross-border trade operations will be facilitated, reducing disputes and fostering an environment of mutual trust.
  2. Government Participation: The role of governments in developing and regulating blockchain usage standards for international trade is critical. Active government involvement is required to ensure universal acceptance and adoption of this exponential technology. Government participation extends beyond policy-making and regulation enforcement. It involves actively collaborating within a triple-helix model with tech innovators, international trade experts, and academics to create an efficient, secure, and fair blockchain-based cross-border trade infrastructure. By establishing this proactive approach, governments can drive Blockchain’s widespread acceptance and application in cross-border trade.
  3. Education and Training: As with any new technology, understanding Blockchain and its implications requires substantial sensitization, learning, and adaptation. This calls for ongoing education and training of personnel involved in trade and customs to facilitate the effective adoption and implementation of Blockchain. However, it’s about more than just understanding how the technology works. It’s about recognizing the potential it holds to transform cross-border trade. Therefore, incorporating blockchain education into existing training and degree programs for trade professionals is crucial.
  4. Interoperability: Blockchain systems must be interoperable and function seamlessly across diverse platforms and systems to transform cross-border trade. This capability is paramount for establishing communication between all actors in the international trade process, from suppliers, manufacturers, shipping and logistics companies, exporters, and importers to customs authorities traversing various countries. A universal communication standard must be established to allow this exponential technology to transcend physical borders, significantly streamlining international trade processes. Interoperability also ensures Blockchain can incorporate and interact with data from other Logistechs, such as IoT sensors. This interconnected ecosystem would facilitate the flow of trade information, escalating transaction speed, reducing errors, and propelling cross-border trade into a new era of efficiency and transparency.
  5. Data Security: The immutable essence of blockchain transactions improves data security. Still, the secure handling and storage of sensitive trade data remains critical. Blockchain inherently offers enhanced security due to its distributed ledger structure. However, we must proactively develop and implement robust security measures as cyber threats evolve. This will build trust and confidence in blockchain systems and contribute to their widespread adoption.

Rather than being an abstract concept, Blockchain’s possibilities are becoming increasingly evident. Its capacity to enhance transparency, accelerate transactions, mitigate fraud, and cut costs positions it as a potentially game-changing tool for cross-border trade. Notably, it has transformative potential for customs clearance processes in cross-border trade, a traditionally complex and time-consuming area.

Customs clearance processes, packed with multiple data exchange points, verification, and validation, can immensely benefit from the Blockchain’s inherent features. By enabling end-to-end traceability and visibility of the entire supply chain, Blockchain can provide customs authorities with a real-time, unalterable record of each product’s journey from the point of origin to its final destination. This simplifies the verification process and significantly reduces the risk of fraud, illicit trade, and misdeclarations.

By maintaining a blockchain-based ledger of transactions, customs authorities can gain instant access to a product’s history at any stage of its journey. This real-time data availability reduces delays, streamlines the clearance process, and enables proactive risk assessment and management. The ability of Blockchain to ensure the accuracy and authenticity of information eliminates the need for redundant checks and repetitive data entry, further boosting the efficiency of customs operations.

By integrating blockchain technology, customs clearance processes will become more efficient, transparent, and secure. The benefits extend beyond trade facilitation, contributing to increased national security, revenue collection, and improved trade compliance.

However, reflecting on past hiccups in supply chain blockchain implementation, it’s clear that the transition to blockchain-based systems should not be rushed. This transition requires a meticulous design and execution strategy encompassing all stakeholders, from government bodies and tech developers to trade professionals and academics. Crucially, the development of these systems needs to prioritize openness and interoperability, as these factors are vital to ensuring wide adoption rates. A system that is open to all and can work seamlessly with existing platforms and networks will not only facilitate its integration into the existing international trade landscape but also foster trust, collaboration, and, ultimately, widespread adoption among all participants in the global trade ecosystem.

At the Texas A&M International Logistechs Living Lab, we are committed to analyzing the impacts of exponential technologies like Blockchain on the logistics and supply chain industries. We explore transformative solutions to drive cross-border trade and economic growth in the Texas-Mexico region, thus contributing to the lab’s vision of a more efficient, transparent, and secure cross-border trade environment.

Dr. Daniel Covarrubias is the Director of the Texas A&M International University, A. R. Sanchez, Jr. School of Business Texas Center for Economic and Enterprise Development.