How Trade Tech Is Transforming Global Supply Chains
COVID-19 is often linked to its impact on mobility and globalization. Stringent measures have been taken to contain the situation, which have constrained the movement of people and goods, nationally and internationally. The coronavirus pandemic has also accelerated previously existing geopolitical trends, especially regarding trade protectionism associated with, for example, medical equipment, pharmaceutical products and COVID-19 vaccine-related research. This, in turn, continues to feed a techno-nationalist zeitgeist as governments resort to export controls and sanctions in “strategic” sectors such as semiconductors and 5G networks and other so-called “dual use” technologies.
This environment has created an acute demand for new and innovative management tools and systems to support good corporate governance and risk management practices. Governments also need to apply new technologies and tools to better fight COVID-19 and facilitate trade.
The emerging solution to manage the challenges of both COVID-19 and techno-nationalism are coming from a burgeoning new field called Trade Tech. The dynamics of the development in this field are captured in the new World Economic Forum report, Mapping Trade Tech: Trade in the Fourth Industrial Revolution.
Trade tech leverages the internet of things (IoT), artificial intelligence, 5G, cloud-based platforms and other Fourth Industrial Revolution technologies to unlock new possibilities and enable transparency and traceability in digital trade and global value chains.
The importance of digital trade has also been outlined in a 2019 paper: Services trade is on a trajectory to outperform global goods trade. The authors of the report write: “In 2017, gross trade in services totaled $5.1 trillion, a figure dwarfed by the $17.3 trillion global goods trade. But trade in services has grown more than 60% faster than goods trade over the past decade.”
Although differences between political and economic systems are on a trajectory of decoupling, and value chains are fragmenting around different standards and values — which will present challenges to trade tech — there will still be many opportunities to turn this field in a significant growth industry.
Three areas, in particular, offer great promise for the future of trade tech.
- Expanding Upon Existing Supply Chain Technology
Visibility and data-sharing are critical for 21st century supply chain and logistics management. They allow companies to drive efficiencies, resilience and customer satisfaction. The complete end-to-end data, paired with powerful analytics, also enables compliance in export controls, denied parties, restricted entity and data privacy regulations. Advanced technology provides the components to realize innovative trade tech solutions to bring global commerce to a new level of performance and compliance.
Initiatives such as IATA’s ONE Record in aviation or the TradeLens data-sharing environment for container ocean shipping intend to ease data-sharing and raise visibility. The maritime sector is also working on digital standards through the Digital Container Shipping Association (DCSA).
Global supply chains have been criticized for their vulnerability to shocks. While many argue that near-shoring is the solution, this is easier said than done. A higher level of visibility is needed regarding the suppliers along the chain, their location, abilities and capacities, the progress of orders and levels of material stocks, as well as the location and condition of goods in transit.
Compliance risk can be mitigated through unique digital trade identities. In a digital world with limited travel, it is hard to know with whom we are dealing. Privately, a Google or Facebook identity can be used across multiple applications. But big businesses need to establish and maintain thousands of profiles, one for each application they use. This comes at a heavy cost and not without risk. While we are lacking a neutral entity that issues standardized and recognized identities for businesses, more reliable product identity technologies have emerged. Startups like Evrythng and Santrust, for example, have developed immutable QR codes to ensure authenticity of products.
Techno-nationalism, accelerated by COVID-19, has disrupted supply chains and global commerce — but the need to manage new risks brings pressure for innovation to the trade tech field.
For some time, export software solutions have been helping companies and employees to increase efficiencies in document processing, execute export licensing and deal with denied parties lists. Compliance and performance traditionally go largely hand-in-hand, and many older, well-established software solutions will coalesce into new technology ecosystems.
- Trade Tech Ecosystem
The new constraints and risks such as trading restrictions caused by the COVID-19 pandemic and techno-nationalism create opportunities for startups and innovative companies. A buzzword in the fintech industry is “reg-tech.” Major banks are investing in know-your-customer, regulatory and onboarding technology to reduce risk and costs as part of the broader digital transformation agenda.
Blending reg-tech into the mix of trade tech solutions minimizes the impact of regulatory scrutiny, while coping with the changes of procedures, laws and regulations. New export control-driven reg-tech involves work being done on microscopic tracking technology that can be placed inside the tiniest of sub-components and components, which then get subsumed within larger machines. These can be used to trace “end use” and “end users” of restricted technologies.
When sovereign interests and our own health are at risk, the stakes for private business are highest. With the expanded use of trade tech and reg-tech, the need for cybersecurity is also increasing, as the fight against cyber risk and cybercrime is fought with the most advanced and sophisticated “cyber weapons.”
- Beneficial Spillover From Trade Tech to Other Sectors
Data analytics services cut across major parts of supply chain networks throughout the global economy. With their industry-agnostic solutions, data companies drive progress and innovation throughout the world. Specialized companies fill data gaps with their own or third-party sensors and analyze newly created data along with data that is stored in traditional systems. These companies, such as Navis and FourKites are themselves innovators, but they also create the foundations for others to innovate on, across all industries.
Trade tech allows for the better management of sites, partners and activities far away. Technologies like 3D-printing, robotics and the internet of things allow for a much more distributed way of manufacturing and operating. While holding the global economy together, they also distribute the grounds for innovation and growth. Trade tech at large is driving many new solutions, ranging from better measurement and reduction of carbon footprints, to enforcement of labor standards, to tools that help to realize the circular economy — a model that fosters the reuse of products and materials to replace the take-make-waste approach.
A recent survey finds that 70% of supply chain leaders are planning to invest in the circular economy in the next 18 months. “Already, 35% of companies believe that digital technology will be a key enabler for their circular economy strategies, but very few are leveraging existing technology for this purpose yet,” says Sarah Watt, senior director analyst.
Sensors and satellite imagery combined with other technologies that provide additional data points can be used to trace carbon footprints, illicit discharge and water pollution, and enforce environmental standards for sustainably caught seafood. Many of these same technologies can also be used to track controlled technologies, from an export controls perspective, throughout global value chains.
Techno-nationalism, accelerated by the COVID-19 pandemic, has disrupted supply chains and global commerce. But the need to manage new risks brings additional pressure for innovation to the trade tech field, which, in turn, has spawned new ecosystems of Fourth Industrial Revolution technologies and businesses. These solutions provide transparency and traceability in supply chains, which facilitate commerce; as well as offering small- and medium-sized enterprises the possibility to better connect to the global marketplace.
Core elements of trade tech are expanding into new areas, creating new ecosystems and spilling over into other sectors, and have become important drivers on the journey toward a more just and sustainable economy.
This piece was originally published in the World Economic Forum.