WEF Explains How Blockchain Can Tackle Global Supply Chain Disruption

As the COVID-19 pandemic broke down major economies, sending them into total lockdown, there is growing concern that the global trade and supply chain could be disrupted within weeks, but there is hope in the form of blockchain.

Destroyed supply and demand, transport frictions, labor shortages, and, in some cases, early signs of protectionism, are making it increasingly difficult for suppliers to keep goods and services flowing through global value chains.

While the depth of the crisis may be never seen before, the authors of an April 6 report for the World Economic Forum state that blockchain technology is the very one to curb these disruptions.

Ziyang Fan, head of digital trade at the WEF, and Rebecca Liao, co-founder and executive vice president of blockchain project SKUChain, state that the technology can ensure the supply chain visibility which is critical, both during times of normal production and of crisis.

Why blockchain is crucial

Until now, according to the authors, many global companies have not bother about digitizing their paperwork which is ubiquitous in trade, believing that the costs of digitization do not justify the benefits.

Logistics networks thus heavily rely on physical signatures and paper print-outs, which require personnel to be present in-person at various locations to keep operations running. One example is the “Bill of Lading,” a detailed list of a ship’s cargo, where a paper copy is still demanded by law.

These paper-dependent operations both reduce visibility and increase risks at times of crisis, diminishing companies’ ability to react quickly to changing circumstances. Already, governments and companies with highly developed digital infrastructure — such as e-signatures and e-transactions support — are withstanding the ongoing turmoil notably better than those without, the authors state.

The resilience to going digital is not linked solely to costs, however. Companies are ostensibly concerned that visibility without strong data privacy will compromise their commercial advantage. They fear a loss of control over who can access sensitive information about their internal operations, pricing and sourcing. The authors detail how blockchain could wipe away these fears:

“When created properly, suppliers can audit their data-sharing permissions directly on their own blockchain node. At the same time, their data can be securely distributed to others in the blockchain network without requiring the point-to-point integration that centralized systems do.”

As data is so important for the smooth functioning of value chains, the report states that financing programs have already been developed to monetize parties’ access to data on performance and risk. Here, too, blockchain can assist in building an efficient and secure financing system, in which “data sharing can be made to pay for itself”:

“Buyers can, for example, use payment commitments on the blockchain as alternatives to a Letter of Credit, pay suppliers later, reduce cost of goods sold, and insulate themselves from supplier bankruptcy. Suppliers, in turn, recognize revenue sooner and replace their current supply chain finance arrangements with much lower financing terms…”