WEF Explains How Blockchain Can Help Calm Global Supply Chain Chaos
As the COVID-19 pandemic brings major economies to their heel under lockdown, there is mounting concern that the global trade and supply chain system could buckle within weeks.
Collapsed supply and demand, transport frictions, labor shortages and, in some cases, early signs of protectionism, are making it increasingly tough for suppliers to keep goods and services flowing across global value chains.
While the depth of the crisis may be unprecedented, the authors of an April 6 report for the World Economic Forum argue that blockchain technology is key to mitigating the impact of such disruptions.
Ziyang Fan, head of digital trade at the WEF, and Rebecca Liao, co-founder and executive vice president of blockchain project SKUChain, claim the technology can provide the supply chain visibility that is critical, both during times of normal production and of crisis.
Why blockchain is crucial
Until now, the authors claim, many global firms have held back from digitizing the paper-based processes that are ubiquitous in trade, due to concerns that the costs of digitization do not justify the benefits.
Logistics networks thus remain heavily reliant on physical signatures and paper print-outs, which require personnel to be present in-person at various sites to keep operations running. One example is the “Bill of Lading,” a detailed list of a ship’s cargo, where a paper copy is still required by law.
These paper-based operations both reduce visibility and multiply risks at times of disruption, reducing firms’ ability to react quickly to changing circumstances. Already, governments and firms with strong digital infrastructure — such as e-signatures and e-transactions support — are weathering the current storm significantly better than those without, the authors claim.
The resistance to going digital is not only attributable to costs, however. Companies are ostensibly concerned that visibility without robust data privacy will compromise their commercial advantage. They fear a loss of control over who can access sensitive information about their internal operations, pricing and sourcing. The authors explain how blockchain could assuage these fears:
“When created properly, suppliers can audit their data-sharing permissions directly on their own blockchain node. At the same time, their data can be securely distributed to others in the blockchain network without requiring the point-to-point integration that centralized systems do.”
Given that data is so crucial to the smooth functioning of value chains, the report notes that financing programs have already emerged to monetize parties’ access to data on performance and risk. Here, too, blockchain can underpin an efficient and secure financing system, in which “data sharing can be made to pay for itself”:
“Buyers can, for example, use payment commitments on the blockchain as alternatives to a Letter of Credit, pay suppliers later, reduce cost of goods sold, and insulate themselves from supplier bankruptcy. Suppliers, in turn, recognize revenue sooner and replace their current supply chain finance arrangements with much lower financing terms..”
In December 2019, a study jointly conducted by Cointelegraph Consulting and Swiss enterprise blockchain firm Insolar estimated that implementing blockchain in supply chains could save businesses in Western Europe $450 billion in logistics-related costs.