TradeTech could be the future of international trade – here’s why

We are on the cusp of a new dawn of tech-driven trade transformation.

Three flows characterize international trade: exchanging a product or service, information and payment. Throughout history, new technologies have revolutionized one or more of these forms of exchange, driving the growth and diversification of trade. Notable examples include containerization, the credit card and, perhaps most powerfully, the internet.

Today, powered by a new generation of applications dubbed TradeTech, the sector is set to advance again. According to a survey run by the World Economic Forum, e-commerce, digital payments, cloud computing, the internet of things (IoT), digital services, digital documents and 5G are the technologies that will have the most immediate impact on trade. Meanwhile, robotics, virtual reality, 3D printing and artificial intelligence (AI) will be integrated in the medium term.

There are four areas I believe TradeTech tools could revolutionize in the coming years.

As we continue to overcome the disruptions of the COVID-19 era, it’s clear that tools capable of real-time prediction and adaptation can help us address global trade dynamics. AI, for example, can anticipate and address supply-chain issues, facilitate risk management at customs clearance and suggest optimal routing.

Blockchain can be deployed to facilitate trade finance, particularly for smaller players, which will improve efficiencies dockside and unlock global trading system access. At the same time, IoT applications can assist warehouse management, improve just-in-time logistics and reduce energy consumption.

The increasingly complex world of trade compliance is also ripe for technological integration. As it stands, a sophisticated understanding of the counterparties involved in a transaction is needed to ensure the exchange does not fall foul of sanctions or export restrictions, while ever-changing environmental requirements and supply-chain due diligence regulations necessitate a deep appreciation of supplier operations.

Similarly, risk management requires multiple sourcing options to be constantly juggled and integrated cheaply.

The global trading system needs simplification and far greater transparency. A combination of digital trade tools and a clearer, more robust regulatory environment will enhance the efficiency of international trade and support the effective management of global value chains.

Trade is dependent on multiple layers of information exchange: between businesses, business and customers, business and government, and governments across the world. Simple digitalization, using interchangeable data standards and APIs (which allow two computer systems to communicate), will enable information to flow between companies, authorities and financial institutions on a secure, on-demand basis.

In more complex transactions, AI-supported analytics tools will help real-time updating and automated contracting. It will also allow for much more precise targeting, optimization and decision-making. Compiling and sharing well-structured data will be an underlying condition for these solutions to thrive.

In recent years, we have seen substantial investment into applications such as distributed ledgers, digital assets and AI, helping build the technological base capable of driving a new era of global trade. Nowhere is this more apparent than in trade finance, the limited access to which is proving to be a major brake on trade inclusivity.

There is, according to the Asian Development Bank, a $2 trillion trade finance gap, which is preventing smaller companies, especially those in the developing world, from accessing the opportunities of global trade. That can be overcome by technological solutions such as blockchain, which can improve approval processes, de-risk cross-border payments and reduce fraud. The UAE’s leadership position in fintech shows how interoperable marketplaces can solve digital identity challenges at the intersection of trade, financing and payment.

There have been encouraging signs that the regulations are catching up with these technological advances. Adopting the model law on electronic transferrable records by the Abu Dhabi Global Market (ADGM) in 2021 and the UK in 2023 is beginning to overcome the legal hurdles to fully digitalizing trade documentation and processes. The upcoming World Trade Organization Ministerial Conference (MC13) in Abu Dhabi in February 2024 provides an opportunity for further policy progress, notably on e-commerce.

At a business-to-business level, the Digital Standards Initiative, which seeks to ensure seamless digitization through the trade ecosystem, and the Digital Container Shipping Association, launched in 2019, also promise pragmatic steps towards the interoperability required for the full integration of TradeTech tools. And the benefits are tangible.

Simply digitalizing bills of lading – documenting cargo loading – could save $6.5 billion in direct costs globally and, through faster document handling and reduced human error, result in $18 billion in gains for the trade ecosystem and add a further $40 billion to the value of global trade. It’s pleasing to note that several shipping lines have now committed to an electronic bill of lading by 2030.

Rewiring the complex web of global trade is no easy task. Vested interests, trust issues, skills gaps and the need to achieve critical scale in the network are all barriers to overcome. While emerging actors who are more agile and less beholden to legacy infrastructure can play a catalyzing role, technological interoperability and regulation that incentivizes the adoption of standards will be key to developing a TradeTech ecosystem that levels the playing field.

In the Global Trade Risks Report 2023 survey of more than 500 global business leaders from around the world conducted by the UAE’s Ministry of Economy, the development, deployment and governance of new technology were identified as the biggest challenges to the multilateral trading system. In particular, 63% of respondents said that “rapid technological advances requiring adaptation” would have a “high,” “very high” or “extremely high” impact on global trade. A similar percentage suggested that cross-border data flows and the associated issues of data privacy, intellectual property protection and digital security are among the most significant risks.

In January last year, the UAE’s Ministry of Economy and the Abu Dhabi Department of Economic Development (ADDED) partnered with the Forum to launch a TradeTech Initiative that will begin to tackle many of these issues. It brings together innovators and investors to accelerate the deployment of TradeTech solutions and establish regulatory sandboxes to optimize their integration into global supply chains. The goal is to not only make trade more efficient but also more accessible and transparent.

As we build towards MC13, we must embrace the potential of TradeTech tools and create the frameworks for their effective deployment. It is a pivotal moment that points to an exciting new trade era capable of unlocking huge value for us all. I invite everyone to join us on this journey.