It's been a long time coming but social distancing, lockdowns, and remote work conditions have hastened global trade digitalization. Until recently, the heavily paper-based industry has managed to avoid technology upgrades. A lack of professional standards, government protocols, and how-to guidance were some of the obstacles hindering progress.
Now facing uncertainty, disruptions, and instability, the future of international trade will depend on its ability to embrace a digital mindset. Rebuilding trade dynamics in a post-COVID-19 economy will require an investment in relevant technology systems. Such digital solutions are improving supply chain resiliency and driving interoperability within trade ecosystems.
During the onset of the health crisis, the International Chamber of Commerce (ICC) suggested that world governments take immediate action by legalizing the use of electronic trade documentation. This essential step would ensure a smooth recovery of economic activity, whilst continuing to use hard copies of trade documents would significantly hamper market recovery. Now, exporters are looking to lawmakers to establish suitable new policies.
UN/CEFACT (The United Nations Centre for Trade Facilitation and Electronic Business) promotes the transition to paperless procedures by establishing universal data reference models. These models ensure consistency between transport information systems and regulatory authorities. Digital capabilities such as the ones below, can help facilitate trade processes.
These new cross-border trade guidelines would enable global commerce to function under a single set of business standards using an Electronic Data Interchange (EDI). EDI-based exchange is already prevalent in many developed countries, but most aren't leveraging the full potential of paperless trading. Meanwhile, many low-income and developing nations are still lacking the infrastructure necessary to benefit from EDI systems.
One of the most pressing problems digital trade solves is a dramatic decrease in paperwork. This can be achieved in a myriad of ways. In Singapore, for example, Digital Economy Agreements (DEAs) are such as the DEA partnership between Chile, New Zealand, and Singapore helps SMEs gain access to digital trade opportunities. Electronic invoicing, cross-border data protection, and digital IDs are some of the efficiencies DEAs bring, ultimately connecting overseas business partners more efficiently and helping companies improve productivity and reduce expenses.
Digitalization of documents, such as Letters of Credit, comes with multiple benefits. For one, electronic documentation is less susceptible to fraud and manipulation. Transparency is another advantage, particularly for financial documents. Digital trade finance tools can help businesses reduce their credit risk, forecast cash flow, and allocate working capital.
Small and Medium Enterprises (SMEs) are critical players in the future of the global economy, but face the most challenges in securing financing. Unfortunately, many companies have already succumbed to bankruptcy due to pandemic-related system and supply chain financing failures.
SMEs already have significant difficulty obtaining financing from banks. These challenges only intensified during quarantine, when many banks closed their branches to reduce the physical contact dangers. Over 55% of SME business operations suffered harsh consequences following the COVID-19 outbreak, particularly in China, the EU, and the US.
One effective solution is Digital Trade Finance, which facilitates international trade for SMEs by maximizing their working capital. Trade finance platforms can help a company secure additional financing in a matter of minutes, and more importantly, create a foundation for economic growth.
Now, business owners are strategically preparing for the new normal by turning to digital trade financing solutions. With these services, companies can minimize their risk exposures while supporting supply chain resilience.
Exporters and importers across the globe are beginning to recognize the advantages of adopting a technology-based infrastructure. Bridging this digital divide will support economic recovery after the pandemic and ensure that trade is less vulnerable to future disasters.
Many regions in Europe, North & Central America, Central Asia, and Asia-Pacific already accept electronic trade certificates. However, areas in the Middle East and North Africa are experiencing more roadblocks when adopting these digital tools.
Find out how Digital Trade Finance can support your company's goals, contact our experienced professionals at MODIFI.