Summary
Running a business on legacy technology and systems is easy—until it’s not. Sometimes, an industry doesn’t realize how far behind its technology is until a major disruption reveals the lag.
For the global shipping and trade industry, the COVID-19 Global Pandemic was this disruption. It revealed a profound technological lag in systems and processes.
Most of the industry still operated using analog systems, such as paper and PDF documentation. Stakeholders such as banks, insurance companies, government entities, and importers and exporters struggled to communicate efficiently, even under normal circumstances.
Analog systems may have been slow, but they did work. At least they did as long as there were employees to handle documentation. But, when COVID-19 struck, restrictions meant that employees couldn’t show up in person.
The paper- and PDF-based industry couldn't offer remote work, so entire global shipping markets came to a screeching halt.
Fortunately, someone was already looking at ways to streamline global trade. In 2017, a cross-industry consortium was launched. In 2020, TradeWaltz Inc. was founded with the vision of creating a digital future of global trade.
The premise was simple: Digitize documentation and processes through user-friendly interfaces that leverage the platforms companies already use.
Full digitization would allow easier communication between all parties. And it would streamline processes to save time and money.
But TradeWaltz knew that stakeholders would have questions and concerns about security. Global trade involves massive amounts of data. Regulatory compliance is also a factor with finance, insurance, and government entities in the mix.
How could a new digital platform ensure that all entities involved could preserve data integrity and security?
Defining the Risks and Costs of Maintaining Analog Systems
For many years, global trade lagged behind other industries in its technological innovation. Even in the post-pandemic era, much of the industry, particularly sea and air freight, still relies on analog communication methods. In Japan, a single transaction can take 72 hours; procedures may take 235 hours in Asia or even up to 400 hours in Africa.
Compare these times to just a few hours in much of Europe. It’s easy to see how markets can quickly fall behind their global competitors.
The cost of such transactions is equally significant. Each transaction costs an average of $350 US in Japan. Globally, these analog transactions can add up to $55 billion US per year.
Paper-based transactions and procedures also create a significant entry barrier for small to medium-sized businesses worldwide.
There is a high cost just to employ the large staff needed to perform these analog transactions. And then companies need warehouse space for storing paper documents. These increase entry costs into the marketplace, which makes financing tough to secure for these businesses.
Finally, as the workplace changes and more employees ask for remote working arrangements, filling positions requiring in-person employees to perform analog procedures is increasingly difficult.
Digital systems may help companies attract employees and meet the challenges of a global talent shortage. Reducing in-person workers can also help organizations reduce CO2 emissions and meet potential climate regulations.
Forming Consortium of Japanese Trade Partners for Pilot Projects
In 2016, NTT Data, a Japan-based member of Hyperledger Foundation, set out to expand into the trade industry. Previously, NTT Data provided blockchain security to the financial services industry. Now the organization saw similar challenges between financial services and trade.
“Financial services and global trade have similar situations,” says Satoru Someya, Managing Director, COO, CMO, and Head of Global & Alliances Business Department. “They both have so many stakeholders, so many transactions, so many unknown parties. They thought, ‘Could we use blockchain for global trade?’”
NTT Data approached Tokio Marine & Nichido Fire Insurance Company with a pilot project. It would create digitized insurance documents for trade.
After identifying several more projects for digitization, NTT Data gathered several banks, insurance companies, cargo owners, and trade logistics companies and carriers and created a 13-company trade consortium.
From 2017 to 2019, the trade consortium, which expanded to 18 member companies, identified cross-industry business issues. And it researched potential AI solutions, applications, and relevant legal and compliance issues. The first TradeWaltz test project launched in 2017 with The Networked Trade Platform (NTP) Singapore. Two more proof-of-concept projects rolled out in 2018 in Japan and Thailand.
Encouraged by these early successes, seven companies from the consortium invested in the company and officially launched TradeWaltz, Inc. in 2020, which was just in time for a global pandemic.
“We saw that the economy and technology were changing before COVID-19,” says Someya. By the time the pandemic arrived, everything was in place for TradeWaltz to provide digitized trade documents for companies who needed to allow remote work.
“Timing is everything. [When COVID-19 struck] TradeWaltz was ready to launch.
—Satoru Someya, Managing Director, COO, CMO
Partnering with NTT Data to Design TradeWaltz Platform Using Hyperledger Fabric
Based on its test cases, TradeWaltz created a cross-industry, all-in-one platform for the global trade market. The platform has three layers: a user interface, the application layer, and the blockchain layer. The blockchain layer uses Hyperledger Fabric.
TradeWaltz ensures data integrity at both the blockchain layer and the application layer. As the company expands nodes into more locations, multiple geographies will manage data to help ensure authenticity.
“Compared to B2C transactions, B2B transactions typically handle larger amounts of money and carry more risk of data falsification, especially across national borders,” says Someya. “We needed technology to guarantee data security for multiple nodes across borders with distributed ledgers.”
But companies that use the TradeWaltz platform don’t need to worry about a cumbersome, difficult-to-manage system.
“Our strategy was to connect the new system to existing hubs, such as SAP or Salesforce,” says Someya. The user interface makes sharing information simple, and the protection of blockchain on the backend protects all stakeholder data. “With one button, all parties can share information and data without risk,” says Someya. Users can still use their legacy systems and rely on the TradeWaltz API to share information securely with other players.
At the blockchain level, carefully selecting recorded information reduces recording volume and improves recording speed. It also enhances data governance by preventing data leaks across geographies. TradeWaltz envisions having nodes distributed to multiple countries, increasing reliability and enhancing data authenticity.