Ever Given, the massive container ship that blocked the Suez Canal for seven days, captured the attention of news media around the world as estimates claimed it was holding up $9bn each day in global trade, straining supply chains already burdened by the pandemic.

The Suez Canal separates the continent of Africa from the Middle East and Asia and is one of the busiest trade routes in the world, handling about 12% of all world trade. However, a much larger proportion of world trade is impacted every day by the inefficiency, risk and uneccessary costs involved in antiquated trade finance processes.

Human error might have been the cause of the Ever Given’s grounding, but it is humans’ adversity to change that is perhaps global trade’s biggest obstacle.

Overcoming barriers to innovation

Through all the advancements seen over the past century, international trade has been slow to innovate. For example, Letters of Credit (LCs) continue to be an important trade finance product for global traders, but they rely on paper-based processes, which are fundamentally slow and prone to error. Now, with the need to change how organisations work in a post-COVID world, there is a greater need to improve how trade and trade finance operate.

One reason why international trade finance has not fully embraced technology is the lack of a common network. As there is no standard connectivity between banks and corporates for trade-finance related communication and data sharing, information struggles to be shared effectively – often resulting in paper documents being hand couriered to each party. Without this common network, any technology application has a limited impact on trade finance operations.

Here, the industry should look to establish an interconnected global network to drive out inefficiencies, improve data transparency and enable interoperability between banks and corporates to start, and eventually to all trade participants.

The current ecosystem also does not integrate the main elements of trade such as contracting, post-trade fulfilment and customs, which inevitably cause friction and unnecessary administration. This in turn increases costs and can delay cargo availability. Unless global trade processes are digitised, commercial activity across borders will always be held back.

Moving to a decentralised network

To begin the process with trade finance, any solution must have the priorities of banks and corporates at heart. With so much data in global trade, privacy and autonomy must be provided. A decentralised network is an ideal tool to achieve this, allowing integration and transparency in real-time while still maintaining data security and independent ownership.

Through a decentralised network, no one party, including the network operator, owns the entire network or controls all the data. All parties in a transaction can share relevant information to finalise an LC with a clear and auditable data trail – without sharing any data to unrelated parties in the network.

Also, a decentralised network can reduce the processing time of key steps by up to 90%. This can mean a reduction from 10 days to under 24 hours to complete a presentation under an LC. This will create huge efficiency gains for banks and corporates, ensuring goods are transported quickly and working capital is optimised. With increased pressure on both financial institutions and corporates to tighten their belts, this opportunity cannot go ignored.

An inclusive ecosystem

Efficiency gains are not the only benefit of a decentralised network. If international trade is underpinned by a common decentralised network, then companies of every size will have more opportunities to do business.

For example, smaller banks and corporate players eager to grow overseas will be able to tap into a common network for knowledge and LC access while larger organisations will have a wider network of potential partners.

Also, a new digital network will not be a competitive advantage for only a few. Businesses that embrace the distributed network model early will prosper, as standalone offerings struggle to compete.

International trade, however, needs to innovate as an industry. The trade finance community can succeed together or fail alone, and a common network is the first step to building a better future for trade.

As the blockage of the Suez Canal is resolved and images of the grounded Ever Given fade into memory, the global trade industry must turn its attention to the far more pressing challenge of digitisation.