Friday, October 30, 2020

First Blockchain-Driven Digitalised Trade Completed By HSBC & Wave

The Global Trade Review (GTR) has reported that the first ever blockchain-driven fully digitalised trade transaction has been successfully completed for a trade transaction that happened between New Zealand and China. The product shipped was milk powder from Fonterra in New Zealand to Sichuan New Hope Trade in China. This was a trade transaction that involved letter of credit subject to eUCP and it was facilitated by HSBC in both countries. Also, Wave (an IT company) was the firm that provided the underlying technology called the blockchain-based digital courier platform which was used to facilitate this first ever fully digitalised trade transaction. 


The carrier that shipped the goods from New Zealand to China issued a cryptographically signed electronic bill of lading through the Wave’s Technology platform and electronically transmit it to the exporter. Upon receipt of the electronic bill of lading by Fonterra (the exporter from New Zealand), the exporter prepared the other shipping documents like invoice and packing list in the Wave’s platform and presented it via a digital ‘envelope’ to the nominated bank which is HSBC in New Zealand. The nominated bank examined the presented electronic shipping documents to ensure that they comply with terms of the letter of credit and eUCP rules. Upon confirmation that the documents complies with letter of credit terms, the nominated bank sent the electronic documents via a digital ‘envelope’ to the issuing bank which is HSBC in China. The issuing bank again examine these electronic documents and pay the exporter upon determination that they are compliant with the terms of the letter of credit and eUCP rules. The issuing bank then sends the electronic shipping documents via digital ‘envelope’ to Sichuan New Hope Trading (the importer in China). The exporter then surrendered the electronic bill of lading to carrier and collected the goods from the shipping line.

A typical trade transaction will take a couple of weeks to complete (from the time of documents issuance by the various issuers to the time of final payment by the issuing bank) and this duration was significantly increased during the movement restrictions caused by the COVID-19 lockdown in various countries from around the world. The use of this blockchain-based digital courier platform has reduced this long process to just about 24hours. The CEO of Fonterra, a company that does shipment on thousands of letter of credit transactions every year, has said that the digitalisation his company’s trade transactions using this technology had helped his company to both streamlined its supply chain processes and also reduce its cost of doing international trade business. 


The bill of lading is a very important document in any international trade transactions because it provides evidence of receipt of goods, evidence of shipment of goods and proof of ownership and title to the goods and all these characteristics aid the financing of the trade transactions by the banks. In the traditional paper-based transaction, the goods cannot be cleared until this document is surrendered to the shipping line and it takes days and sometimes weeks for this document (along with other commercial documents) to travel from origin to destination of the goods and it is physically exchange along the way from one hand to the other. The lockdown and movement restrictions caused by the COVID-19 pandemic and the delay in transmission of documents and clearing of goods that followed, coupled with the demurrage cost resulting from the delay in clearing the goods at the ports have intensified the call for the use of electronic bill of lading by the importers exporter, carriers and financiers. 

 The race for fully digitalised trade has been on for a while now and a new solace has been found in the blockchain technology. One of the characteristics that has made blockchain to be suitable for this is the is its distributed ledger technology. This has also led to the development of a rule that will guide banks around the world through the process from the beginning to the end by the International Chambers of Commerce (ICC) and this is called the Uniform Rule for Digital Trade (URDT). It is therefore highly imperative for developing countries like Nigeria and Africans in general to get prepared to widely adopt this technology for the digitalisation of trade so as to facilitate the speed and volume of international trade transactions under the Africa Continental Free Trade Area (AfCFTA). This is because the AfCFTA, driven by this technology to effectively and efficiently trade among the markets on the African continent, have the potential to help African countries to attain what the developed countries have achieved in trade and development within a shorter period of time.

Source:https://www.gtreview.com/news/fintech/hsbc-and-wave-complete-first-blockchain-trade-transaction-from-new-zealand-to-china/

 
For the love of Nigeria, Africa and Mankind.
Bamidele Ayemibo (bayemibo@3timpex.com)
Lead Consultant at 3T Impex Trade Academy