The current system for shipping endless amounts of products around the globe needs an upgrade, and blockchain tech is a great solution to many of the issues
It’s expensive to ship products from one side of the world to the other.
The world of trade finance enables businesses to ship products, but requires a lot of paperwork, approvals, contracts and money to make that happen.
The process used now has been in place for ages, and uses paper documents, old-school banking and is subjected to fraud, human error, miscommunication and inefficiency.
When a widget is shipped from country A to B, the shipper doesn’t use cash to pay for everything involved, they use credit.
This means there are banks involved, applications, contracts and other paperwork that is part of taking out a loan.
The widget also is passed along by different businesses in the supply chain, and often crosses borders which means customs paperwork.
Each time a new contract or agreement is needed, a person has to do the paperwork, get approvals needed and keep track of the huge volume of orders.
It’s common for the same invoice to be paid multiple times, for miscommunication to lead to errors and lengthy delays because one person who has to approve something isn’t around.
It’s a system in need of a make-over.
How would blockchain tech play a role?
To start, the volume of documents could be digitized, which makes electronic approvals an option.
This saves tons of paper, and allows the documents to be shared online.
Next, blockchain tech would make the system measurable.
Paper documents aren’t easily turned into datasets that can be measured, but that is easy with electronic documents.
Once the parties involved can measure the supply chain, it’s easier to improve.
The banking system that finances trade (issues credit) uses a series of middleman banks called correspondent banks.
They support the financial transaction, but anytime a new player is involved it adds time and expense.
If the contracts, and the financing, were managed through the blockchain, the processes used could be automated using smart contracts.
These are computer programs that function like “if-then” statements.
If person X approves contract, then send funds to person Y. Those automated transactions would happen very fast, speeding up the entire process.
And the use of correspondent banks requires accounts called “nostro accounts” to be set up, locking up funds needed to transfer funds.
Alternatively, a digital asset like $XDC could instead be used to transfer value, which frees up the money in the nostro accounts.
Fortunately, in history when a system like the supply chain becomes massively more efficient, less prone to waste and more measurable, prices go down.
The current system has to absorb unnecessary expenses that get passed along to buyers.
Moving to blockchain tech, particularly with a system like XinFin XDC Ledger would modernize the global supply chain.