The economic effect of the current global COVID-19 lockdown will be severe. An essential focus for supporting the economic rebound is to invest in efforts to deepen economic integration and further lower trade costs.
Digitization, and the creation of specialized ecosystems, will be the single most efficient approach to reduce trade cost on a global scale, which will benefit all countries currently impacted by COVID-19.
The opportunity: Swift relief at scale
Unlike national relief packages, investment in global trade digitization initiatives do not have a natural sponsor. However, the incumbents in the logistic industry can act quickly and as one to support the rebound of the global economy after COVID-19. (For example, the top five container carriers - APM-Maersk, MSC, COSCO, CMA-CGM and Hapaq Lloyd account for 2/3 of containerized trade that again covers 60% of seaborne trade). Furthermore, as the single group of actors who would benefit most, they could quickly see a reduction in cost, fewer barriers for innovation and an increase in the global logistic market.
Importantly, the required investment will be based on traditional Return on Investment (ROI) calculations, and not financed by the taxpayers. Digitization of global trade will be a gift that keeps on giving, both to the incumbents as well as to the societies’ wealth at every corner of the world.
What is the World Economic Forum doing about blockchain governance in global supply chains?
The World Economic Forum has produced a toolkit on responsible deployment of blockchain in global supply chains. The first-of-its kind Blockchain Deployment Toolkit provides insights from more than 100 experts and provides key guidelines on topics such as risk, consortia formations, security and ecosystem collaboration.
The toolkit is delivered through the Forum’s Centre for the Fourth Industrial Revolution (4IR), that shapes the development and deployment for new technologies and provides a space for global cooperation to create understanding and policies that accelerate these technologies’ positive impact for the individual and the society. The acceleration of the post COVID-19 economic rebound through 4IR-technologies such as blockchain is an important task for the 4IR-centre today.
The change: Efficient, resilient digital ecosystems
Five digital networks, dubbed logistic Internets by some professionals, lay the foundation for global trade digitization. Imagining these systems as common goods, like the Internet, increases the industry’s innovative capacity, reduces cost and increases the capacity for global trade. Just like a homepage can be accessed by any browser globally, actors connected to the logistic internets can immediately share information, identities, trade documents and events without the hassle of building one-to-one connections. Significantly taking cost out of establishing digital connections and increase trust in that investment in innovative digital solutions can be used globally. The Logistic Internets support national policy frameworks, and are therefore independent of national jurisdictions
Of these, one of the most important Logistic Internets to develop include Digital Global Trade Identity, allowing for systems that authenticate digital identity. Knowing the identity of the entity you interact with and who has digitally signed a document is foundational in any digital interaction.
Another key Logistic Internet to develop is Customs Cross Border Interoperability (CCBI), providing for the cross-border electronic data exchanges of permits, licenses, etc. The World Trade Organization (WTO) predicts that trade could grow yearly by 1.8 to 2 percentage points more until 2030 as a result of falling trade costs, amounting to a cumulative growth of 31 to 34 percentage points over 15 years. While the CCBI will not account for all falling trade cost, digitization will be an important contributor.
There have already been many conferences, research efforts, standardization initiatives and pilots that have identified a clear direction for each Logistic Internet. The next step is collaborative realization, where the logistic industry invests to realize the foundation, giving long-term benefits for the industry as well as an acceleration of the post COVID-19 economic rebound. The foundation includes Open Source implementations, connectivity components and business models for offering Logistic Internet functionality. This will allow individual organizations to independently realize interoperable Logistic Internets within their sphere of interest. So, just like the traditional Internet looks like one Internet while it is really a network of independent networks, the Logistic Internets will look like a coherent network, while they are actually implemented as a network of networks.
The challenge: Seizing the opportunity to collaborate
If we start now, it is realistic to have the two most important Logistic Internets ready for production within one year. Which means that already in year two, we will see the Logistic Internets’ contribution to the global post COVID-19 economic rebound. WTO predicts that the decline in trade costs can be especially beneficial for SMEs and firms from developing countries, those expected to be hit hardest by the COVID-19 economic crisis. The WTO foresees that developing countries’ share in global trade could grow from 46% in 2015 to 57% by 2030.
The post COVID-19 economic rebound is a global responsibility and the realization should be a global collaborative effort.
To be sure, collaboration will be key. A major challenge for a global trade multi stakeholder initiative is the formation of the collaborative business structures where fierce competitors work together to realize such ecosystem-solutions. Who pays for what? Who decides what? Who is accountable for what? Who takes the credit? How do you get out?
Another challenge will be the focus on the ultimate goal: shared control and responsibility. By realizing the Five Logistic Internets (as either a decentralized or distributed solution), control will not be held by a few central players, but by the whole. As a result, these ecosystems will enable a commercially, competitively and politically neutral digital foundation for global trade.
“Supply chain system issues – lack of interoperability, integrity, resilience, transparency – will be key to address in a world after COVID-19 as part of initiatives to restore global growth," explains Nadia Hewett, Blockchain and Digital Currency Project Lead at the World Economic Forum. "The impact of distributed ledger technology to provide solutions to such issues will become more relevant and evident. Remember, blockchain technology enables a ‘shared truth’ and ‘I see what you see’. And trust is at the centre."
Acceleration of the post COVID-19 economic rebound through 4IR-technologies is such an important task, the World Economic Forum accelerated the availability of the Redesigning Trust: Blockchain Deployment Toolkit. The toolkit contains frameworks, tools and resources critical for baking in resilience, integrity and interoperability in distributed supply chain systems.
The ROI is so attractive for the incumbents and the effort so important for the global economic rebound, that immediate actions should be taken to realize it. Now is the time to invest to accelerate the post COVID-19 economic rebound, with business benefits that continues to give for years to come.