Global trade digitisation – An opportunity for Australia

| October 30, 2018

Australia has a major opportunity to advance digital trade by strengthening trade and investment links throughout the Asia-Pacific. Michael Lim, Head of Trade and Supply Chain at ANZ Bank, spoke about the impetus for Australia to keep up with international developments at the GAP Summit on Digital Trade in September.

International trade is still largely administered through paper transactions. ANZ processes the paperwork for 70,000 transactions a month across 34 countries, and the bills of lading, freight forwarding and customs certificates and inspection documents add up to a substantial pile of paper.

The administrative burden for Australian exporters is immense, as international trade administration lags about 20 years behind other industries which have digitised their operations.

This old-fashioned state of affairs is a product of commercial, rather than technological issues, given the challenge of getting all stakeholders to collaborate to digitise their procedures and remove frictional costs.

Exporters must deal with trucking and shipping companies, ports, customs and inspection certificates at home and abroad, and digitising these procedures would mean that every stakeholder would have to collaborate in terms of procedures, standards and cyber security.

Slow progress towards trade document digitisation has several consequences for Australian exporters. Frictional costs are generated for firms which must compile and physically shift large amounts of paper to banks, agencies and trading partners by courier.

One Australian beetroot exporter, for example, incurs administrative costs of US$12,000 for each shipment, $8,000 of which is generated this side of the border.

Those documents must then be checked by bank staff for compliance to sanctions, fraud and money laundering regulations. Buyers must also commit teams of people to process the paperwork and ensure it complies with their requirements.

The reliance on paper increases the risk of fraud and in turn limits financing for small and medium-sized exporters. Paper is also a much slower way to communicate. While a digital bill of lading from a shipping company could pass through an entire supply chain in three minutes, a trail of paper might take a week.

Stacks of paper documents also create a barrier to entry for new fintech firms or alternate financiers that may have a higher level of risk appetite than banks. Banks have the infrastructure, resources and experience to process paperwork in an industrialised manner, while new entrants are understandably unlikely to invest in replicating such manual processes.

Digitisation will assist in removing these barriers to entry and encourage alternate financiers to enter the sector, creating more funding options for Australian SMEs. Digitisation will also reduce the risk of fraud potentially increasing the appetite of established banks.

Progress towards Asia-Pacific digitisation

 Change is finally underway in the Asia-Pacific. The monetary authority of Singapore is creating a ‘single window’ or portal to provide all the documentation which importers and exporters require in digital form. It will initially include banks and then shipping companies, freight forwarders and insurers in the future.

ANZ is working to integrate this system into its own systems and operations. The Hong Kong Monetary Authority (HKMA) is also building a blockchain-based open account trade platform, and the ANZ is one of seven banks working with the HKMA to create it.

 In August 2018, Singapore announced it would work with the UAE regulator to connect their respective platforms, and Hong Kong and Singapore had announced their intention to connect their trade platforms in October 2017. Hong Kong is also working to connect to China.

A consortium of banks in Korea and Japan have approached Singapore and Hong Kong to join the Global Trade Connectivity Network (GTCN), and all these moves are increasing the momentum towards digital administration to reduce frictional costs and improve efficiency.

This is the best momentum towards digitisation in decades, with regulators in different markets leading this change. Singapore is driving its project as a full government initiative by building the platform and inviting stakeholders to connect to it, while Hong Kong is building its system through a public-private partnership.

The benefits for national regulators is the centralised, digital platforms because 80% of current international trade is conducted via open account, which means the stack of documentation goes directly from the supplier to the end buyer.

This means the data on that paper is not available to banks, regulators, crime authorities and other agencies. They only see the final payment. Digitisation not only reduces frictional costs but creates a pool of data which the authorities can analyse through algorithms to uncover patterns and anomalies, identify money laundering and other types of financial crime.

The opportunities and threats of new platforms

These changes can be viewed as a material opportunity or a threat for Australia. However, Australia should seize the chance to join the digitisation of trade to boost the economy and help SMEs export.

Regional digital platforms will benefit Australia’s SMEs more than the large corporates and multinationals, as large companies generally have the resources and scale required to invest in proprietary solutions which connect directly to their large buyers and suppliers.

Australia must move quickly, as Asian buyers will increasingly prefer suppliers which can deliver data directly to their ERP platform, rather than deal in cumbersome paper intensive processes.  Australia will be at a competitive disadvantage, if it does not embrace digitisation in this way. 

Australia will also be a ‘soft target’ for international criminals, if the regulators of other countries become more adept at detecting financial crime through sophisticated analysis of their digital data while Australia lags behind.

In closing, Mr Lim called for faster progress towards the standardisation and digitisation of government and commercial documents for Australian importers and exporters. The concept of a ‘single window’ project should also be clarified by government, in terms of what appetite the government has for developing a Singapore or Hong Kong style project.

Alternatively, does the government see its role as solely delivering digitised documents? Either way, this is important to determining where the private sector begins, as well as ensuring any national and regional platforms are interoperable. Australia must engage with Asian markets driving towards digital transformation to reap the benefits it will create.

This is an edited summary of the speech delivered by Michael Lim, Head of Trade and Supply Chain at ANZ Bank, at the GAP Economic Summit on Digital Trade on September 7 in the Legislative Assembly Chamber of  NSW Parliament House.