Embracing Blockchain for Cross-border Trade

In August of 2019, both the United States and Thailand announced their plans to test blockchain applications for tracking and managing shipments. The U.S. Customs and Border Protection (CBP) is planning to test a blockchain application against their current system to determine how distributed ledger technology (DLT) can improve its existing processes. Thailand, on the other hand, plans to use IBM’s blockchain-based logistics platform Tradelens to improve customs processes such as data sharing.

Originally developed in a joint venture between IBM and logistics giant Maersk, Tradelens seeks to streamline processes in the global shipping industry by making the flow of information occur in real-time. The blockchain platform is reported to currently process about half of the world’s shipping data.

These moves highlight countries’ increasing interest in employing blockchain technology in their customs and border operations. The Tradelens website says its ecosystem comprises over 100 different organizations including carriers, ports, terminal operators, third-party logistics firms, and freight forwarders. More specifically, a map on the Tradelens website suggests that about 60 ports and terminals worldwide are directly integrated with TradeLens.

Elsewhere, the Directorate-General for Taxation and Customs Union (TAXUD), which develops policies and operational systems for the European Customs Union, explored the applicability of blockchain in customs and taxation with a focus on utilizing blockchain as a notarization service.

The Union is looking into using blockchain to digitize ATA Carnet, an international customs document used in 87 countries for temporarily admitting goods duty-free. A pilot project conducted in collaboration with the International Chamber of Commerce World Chambers Federation (ICC WCF), was successfully tested in 2018. 

The ICC WCF, a body of the ICC that helps facilitate mutually beneficial partnerships between ICC members, has been working with different customs authorities to develop solutions for converting ATA Carnets into electronic documents.

About 80 countries around the world have developed authorized economic operator (AEO) programs and signed a mutual recognition agreement (MRA), all in an effort to streamline cargo security. Under such arrangements, individual countries identify and approve trustworthy logistics operators that pose a low risk in security and share the approval information with participating countries. 

This allows countries to piggyback on the security checks of other countries to make customs operations more efficient. However, a few problems have arisen with the program. 

  • There are information leakage risks associated with the conventional way of sharing AEO data by email. While a sender’s email server may be encrypted, there is no guarantee that the receiver’s is as well, and vice versa.
  • Data sharing is not real-time, but monthly or at an agreed-upon interval. This limits the speed at which information on new or suspended AEOs can reach all participants.

To avoid the aforementioned problems as well as achieve additional time and cost savings on security procedures, customs administrations in Mexico, Peru and Costa Rica are working with the Inter-American Development Bank to develop a blockchain application called Cadena.

The move by governments around the world to employ blockchain to improve cross-border trade marks a step toward paperless customs processes, which originally began with the digitization of information flows by making trade-related data and documents available and exchangeable electronically. For all the improvements they’ve brought to paper-heavy processes, traditional electronic data exchange systems still face the challenges of authenticity and the unavailability of real-time data exchange.

For instance, the Netherlands and China launched a five-year project in 2010 to test the applicability of electronic sanitary and phytosanitary (SPS) certificates. A World Economic Forum white paper titled “Paperless Trading: How Does It Impact the Trade System?” noted that concerns around the authenticity of the electronic documents arose. This necessitated the adoption of electronic signature systems and a whole new legal framework that recognized the electronic signature.

Still, the entire process requires longer procedures and the introduction of new types of intermediaries — e-signature providers, for instance. Moreover, low-income countries, the trade costs of which remain high compared to high-income countries as according to World Bank data, may not have the budget to implement several new systems for data and document digitization. They still need to invest in better customs infrastructure. 

Blockchain, on the other hand, if implemented in border protection, will ensure real-time availability and immutability of customs documents while saving considerable costs on excessive paperwork.

Source: Original article titled: “Blockchain Adoption as a Cure for Cross-Border Trading“, authored by Craig Adeyanju, Cointelegraph.com, 2019.09.28

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WCO News – June 2019

WCO – Blockchain for Customs

WCO-Unveiling the Potential of Blockchain in CustomsThe World Customs Organization (WCO) has initiated work to identify possible case studies and uses of blockchain for Customs and other border agencies with a view to improving compliance, trade facilitation, and fraud detection (including curbing of illicit trade through the misuse of blockchains and Bitcoins), while touching on associated adjustments in legal and regulatory frameworks.

The objective of this research paper is to discuss ways in which Customs could leverage the power of blockchain and the extent to which the future of Customs could be shaped by the use of blockchain-based applications. Blockchain projects are currently in the beta testing phase in the finance sector (facilitating inter-banking system processes), insurance sector (preventing fraud and accelerating coverage) and international trade. With regard to the latter, this paper focuses its attention on two initiatives.

  • The first was launched by MAERSK-IBM as a global trade digitalization platform to which Customs administrations are expected to join.
  • A second initiative consists of an “information highway”, joining the National Trade Platform of Singapore and the Trade Finance Platform of Hong Kong, with a view to creating a Global Trade Connectivity Network (GTCN).

A conclusion that has been reached after discussion is that Customs would be able to have a broader and clearer picture of international trade particularly in terms of the movement of cargoes and consignments as being tied with the flow of capital. With blockchain-based applications, therefore, Customs could become a full-fledged border regulator with greater capabilities in the future.

Source: WCO, Y.Okazaki, June 2018

 

Trade Lens – Maersk and IBM implement their jointly developed blockchain-based solution

TradeLens

Maersk and IBM have introduced their global blockchain solution TradeLens, with 94 organizations already participating. The companies announced their joint venture in January this year after collaborating on the concept since 2016.

Early adopters include more than 20 port and terminal operators across the globe, including PSA Singapore, International Container Terminal Services Inc, Patrick Terminals, Modern Terminals in Hong Kong, Port of Halifax, Port of Rotterdam, Port of Bilbao, PortConnect, PortBase and terminal operators Holt Logistics at the Port of Philadelphia. They join the global APM Terminals’ network in piloting the solution at over 230 marine gateways worldwide.

Pacific International Lines has joined Maersk Line and Hamburg Süd as global container carriers participating. Customs authorities in the Netherlands, Saudi Arabia, Singapore, Australia and Peru are participating, along with customs brokers Ransa and Güler & Dinamik.

Participation among beneficial cargo owners has grown to include Torre Blanca / Camposol and Umit Bisiklet. Freight forwarders, transportation and logistics companies including Agility, CEVA Logistics, DAMCO, Kotahi, PLH Trucking Company, Ancotrans and WorldWide Alliance.

TradeLens uses IBM Blockchain technology built on open standards to establish a single shared view of a transaction without compromising details, privacy or confidentiality. Shippers, shipping lines, freight forwarders, port and terminal operators, inland transportation and customs authorities can interact via real-time access to shipping data ad shipping documents, including IoT and sensor data ranging from temperature control to container weight.

Using blockchain smart contracts, TradeLens enables digital collaboration across the multiple parties involved in international trade. The trade document module, released under a beta program and called ClearWay, enables importers/exporters, customs brokers, trusted third parties such as Customs, other government agencies, and NGOs to collaborate in cross-organizational business processes and information exchanges, all backed by a secure, non-repudiable audit trail.

During a 12-month trial, Maersk and IBM worked with dozens of partners to identify opportunities to prevent delays caused by documentation errors and information delays. One example demonstrated how TradeLens can reduce the transit time of a shipment of packaging materials to a production line in the U.S. by 40 percent, avoiding thousands of dollars in cost.

Through better visibility and more efficient means of communicating, some supply chain participants estimate they could reduce the steps taken to answer basic operational questions such as “where is my container” from 10 steps and five people to, with TradeLens, one step and one person.

More than 154 million shipping events have been captured on the platform, including data such as arrival times of vessels and container “gate-in,” and documents such as customs releases, commercial invoices and bills of lading. This data is growing at a rate of close to one million events per day.

TradeLens is expected to be fully commercially available by the end of this year.

Source: Maritime Executive, original article published 2018-08-09

Australia – Blockchain-based Trade Community System

Trade Community System - Brisbane - DashboardA new Trade Community System (TCS) that will function as a free to access portal bringing together existing data on container shipments is the result of a collaboration between PwC Australia, the Australian Chamber of Commerce and Industry, and the Port of Brisbane.

The goal of the TCS is to link existing supply chain information in disparate systems through blockchain technology, and in the process “revolutionise international trade by removing complexity”.

The developers of TCS noted that one shipment to or from Australia today generates as many as 190 documents and 7,5000 data fields, much of which is duplicating data for different systems, and there is no ability currently to track containers on end to end journeys.

TCS aims to address this with a “National platform that links rather than replaces existing systems, provides end to end visibility and foresight of impediments such as delays and incorrect information, and is permissioned”. All documents, approvals and other requirements would be linked to a single shipment or container number as hashes on a blockchain that supports the TCS system, or stored in an off-chain graph database.

TCS - Brisbane

The developers stressed that TCS “augments, not replaces the systems that are already part of Australia’s supply chains”. Users would access the TCS directly through a web portal or indirectly through their existing systems, and at no upfront cost. “Users are not charged to use the platform or access data about the goods they are managing. Revenue comes from the productivity and service innovations that the data unleashes,” the developers stated.

Speaking at the launch of a proof of concept Trade Community System digital application in Brisbane, Port of Brisbane CEO, Roy Cummins said: “To drive new efficiency gains, industry leaders need to develop mechanisms which facilitate the integration and interoperability of commercial operators across the supply chain and logistics sector”.

This is the goal of the TCS. “The Trade Community System proof of concept is the first stage in building an innovative end-to-end supply chain that will digitise the flow of trading information, improve connectivity for supply chain participants, reduce friction for business and reduce supply chain costs, providing unprecedented productivity gains for Australia’s international businesses,” PwC Partner, Ben Lannan added.

For the Chamber of Commerce and Industry, TCS is an important step in reducing the cost of doing business. “As a trading nation, Australia relies on efficient and effective international supply chains to drive its economic engine room,” said Australian Chamber Director of Trade and International Affairs, Bryan Clark. “At present the current inefficiency across Australian supply chains has added to the cost of doing business, creating up to $450 in excess costs per container. This doesn’t just represent in excess of $1bn in value lost, but goes to the heart of Australian commodity trade viability when it gets priced out of the competitive global market”.

Check out the video – https://vimeo.com/262332930

Source: WorldCargoNews, Editorial, 30 May 2018

 

 

CargoX – World’s First Blockchain Bill of Lading

CargoX

Hong Kong-based CargoX raised $7 million through an initial coin offering to build its smart contract-based house bill of lading solution. CargoX, has designs on developing so-called smart contracts to transfer house bills of lading onto a blockchain solution it is building. House bills of lading are issues by non-vessel-operating common carriers (NVOs).

The coins, also called tokens, can be used to pay for CargoX’s smart contract solutions, but those interested in the blockchain-backed bill of lading solution can also pay with traditional currencies.

“Our platform will support all the legacy payment options with fiat money, but as we are a startup based on blockchain technologies, we are working on implementing cryptocurrency payment as well,” said CargoX founder Stefan Kukman. “There will be various service levels supported, and there will be additional features and services provided to holders and users of our CXO utility tokens.”

The ICO serves two purposes in this application. It helps CargoX raise funds as opposed to seeking venture capital investment, but the coins can also be used to transact within the solution. So, the sale of the CXO tokens is ancillary to the product offering.

That’s different from another crypto-token liner shipping model that emerged in the second half of 2017 called 300Cubits. That company issued tokens, called TEUs, to underpin a solution that would penalize shippers and carriers for no-show or overbooking behavior.

CargoX, meanwhile, said it wants to be a neutral platform for global trade documentation and is starting with the bill of lading approach. The solution comprises an app, a document exchange protocol, and a governing body, which is currently being established.

“The next step is to demonstrate the viability of our platform with a test shipment,” Kukman said.

That pilot, scheduled for the second quarter of 2018, links a logistics company with its clients on a shipment from Asia to Europe.

“Technology companies often lack the shipping and logistics expertise necessary to break into this industry,” Kukman said. “On the other hand, logistics companies venturing into the tech field may be held back by their reliance on established, old-school business practices.”

To register, CargoX collects “know your customer” and NVO license information “to establish roles and permissions on the platform.”

“Once companies register, they will receive their public and private key for signing the Smart B/Ls. This can be done in the Smart B/L distributed application provided by CargoX, or with the help of the CargoX Smart B/L API (application programming interface) integrated into the company’s system.”

That integration can take a few hours or weeks, depending on the workflow of the company, CargoX said.

The ultimate goal of bringing bills of lading to the blockchain solution is to create a common, encrypted repository of data. The secondary benefit of that process would be the potential to eliminate bank-backed letters of credit for suppliers, as the smart contract would automatically trigger payment.

“The shipping industry currently wastes billions of dollars on spending related to letters of credit, which are used in global trade as a payment guarantees,” Kukman said.

In terms of how the blockchain-backed bill of lading would function in practice, Kukman said that data will be encrypted and stored in a decentralized storage application.

“These are much safer than centralized storage, as they use the same blockchain security mechanisms as the billions of dollars worth of cryptocurrencies such as bitcoin currently in circulation,” he said. “Actual ownership (of the document) will be traded (sent) in the same way people send tokens today, from one wallet to another.”

Visit CargoX website, click here!

CargoX Whitepaper, click here!

Source: American Shipper, E, Johnson, 14 February 2014

Implications of ‘Big Data’ for Customs Risk Management Capability

big_data

Historically, a customs officer’s “intuition” backed up by his/her knowledge and experience served as the means for effective risk management. In the old days (20 years ago and back) there wasn’t any need for all this ‘Big Data’ mumbo jumbo as the customs officer learnt his/her skill through painful, but real-life experience, often under bad and inhospitable conditions.

Today we are a lot more softer. The age of technology has superseded, rightly or wrongly, the human brain. Nonetheless, governments thrive on their big-spend technology budgets to ensure the safety of their economies and supply chains.

No less, the big multinational corporations whose ‘in-house’ business is no longer confined by national boundaries or continents are responsible for the generation of huge amounts of data which need to extend  to the limits of their operations. When the products of such business are required to traverse national boundaries and continents,  their logistics and transport intermediaries, financiers, and insurers become themselves tied up in the vicious cycle of data generation and transfer, also spanning national boundaries to ensure those products arrive at their intended destinations – intact, in time and fit for purpose. Hence we have what as become known as the international supply chain.

It does not end there. Besides the Customs authorities, what about the myriad of other government regulatory authorities who themselves have a plethora of forms and information requirements which must be administered and approved prior to departure and upon arrival of goods at their destination.

Inefficiencies along the supply chain culminate in delays with added cost which dictates the viability for sale and use of the product during delivery. These may constitute what is called non-tariff barriers (or NTBs) which negatively impact the suppliers credibility in international trade.

The bulk of this information is nowadays digitised in some for or other. It is obviously not all standardised and structured which makes it difficult to align, compare or assimilate. For Customs it poses a significant opportunity to tap into and utilise for verification or risk management purposes.

The term ‘Big Data’ embraces a broad category of data or datasets that, in order to be fully exploited, require advanced technologies to be used in parallel. Many big data applications have the potential to optimize organizations’ performance, (and here we have it) the optimal allocation of human or financial resources in a manner that maximizes outputs.

At this point, let me introduce one of the latest WCO research papers – “Implications of Big Data for Customs – How It Can Support Risk Management Capabilities” by Yotaro Okazaki.

The purpose of this paper is to discuss the implications of the aforementioned big data for Customs, particularly in terms of risk management. To ensure that better informed and smarter decisions are taken, some Customs administrations have already embarked on big data initiatives, leveraging the power of analytics, ensuring the quality of data (regarding cargos, shipments and conveyances), and widening the scope of data they could use for analytical purposes. This paper illustrates these initiatives based on the information shared by five Customs administrations: Canada Border Services Agency (CBSA); Customs and Excise Department, Hong Kong, China (‘Hong Kong China Customs); New Zealand Customs Service (‘New Zealand Customs’); Her Majesty’s Revenue and Customs (HMRC), the United Kingdom; and U.S. Customs and Border Protection (USCBP). Source: WCO

Big Data – Mining Vessel History to Combat Smuggling

For thousands of years, maritime authorities have relied on tip-offs, patrols, investigations and random inspections to find smuggled goods. Today they have a variety of additional methods at their disposal, and one of the most promising is also the most intuitive: looking at every vessel’s historical behavior.

Israeli firm Windward was founded to collect, vet and analyze AIS, along with a variety of other commercial data sources on maritime traffic. Just having access to the massive quantity of data that the world’s fleet generates is not sufficient: it could take weeks for a human operator to sift through the records of just a few hundred ships, and law enforcement agencies need actionable intelligence in real time.

This is where Windward excels. Its system uses proprietary algorithms to find specific ships that may be involved in illicit activity based on a number of “red flag” behaviors. Loitering just off of a village or an uninhabited bay may be a sign that a vessel is engaged in tendering goods or passengers from shore. Similarly, when a ship turns off its AIS transmitter or changes its AIS reporting name near smuggling hotspots, it may be taking on contraband. And a ship with a well-established trading pattern that suddenly heads to a troubled region may be engaged in a new (and not entirely legitimate) line of business.

These behaviors are obvious when Ami Daniel, Windward’s CEO and co-founder, walks through a few examples in a live presentation. The novel development isn’t the signal pattern – it is the fact that his firm can automatically find it, without knowing which ships to examine in advance. It doesn’t matter if a vessel is operated by a reputable company or a known North Korean front – Windward’s system analyzes records for the entire fleet, and if a vessel looks suspicious, it gets flagged.

A few cases illustrate the potential of this approach. In Windward’s best-known example, a Cyprus-flagged reefer with a history of trading between Northern Europe and West Africa headed to a port in Ukraine – well outside its normal pattern. It returned towards the Strait of Gibraltar, but before passing through to the Atlantic, it lingered off of Algeria and Morocco for 12 days. It turned its AIS on and off multiple times in busy shipping lanes during this loitering period. Windward notes that this region is at high risk for the smuggling of arms and narcotics.

After passing through the Strait of Gibraltar, the vessel headed north towards Scotland, where it arrived on January 14. It loitered again for half a day in a small bay off the isle of Islay – an area without a port for a 4,200 dwt ship. Windward’s system flagged this behavior as a potential sign of a smuggling drop-off, though it is also possible that the ship anchored up to wait out foul weather or to time its arrival.

This particular case made headlines in the UK when Windward told media that hundreds of vessels with suspicious records entered British waters in the first two months of 2017. The story was picked up by the Global Mail, Sky News and the Daily Record, and Scottish politicians called on the authorities to look into the matter: “This requires investigation, certainly by the police and, I suspect, by the security authorities to clarify what’s going on,” said member of Scottish Parliament Mike Russell.

These results capture attention, and Daniel says that the firm is marketing the system’s abilities to multiple government agencies. The kind of smuggling/trafficking behavior that it can identify is often associated with organized crime and the financing of terrorism, so it has a great deal of appeal for intelligence applications as well as maritime security / maritime domain awareness. He suggests that for now, commercial users (traders, brokers and others) are not a target market, nor does he foresee branching out into similar offerings for trucking or air freight. Windward does one thing well – very well – and Daniel expects that it will invest in its core strength for some time to come. Original article published in The Maritime Executive.