When I finally found it, my shipment was standing on an enormous wooden pallet in the middle of what looked like a junkyard 20 miles outside Washington, D.C.

That was as far as they were going to take it.

“They” being the shipping company I’d hired to bring some things from Cape Town to Washington, where I’d taken on a one-year consultancy at the World Bank.

The freight forwarder in Cape Town had neglected to offer the option to have things delivered door to door.

Oops.

Indeed, my dominant memory of that international move — and of the three others I’ve made — is paperwork.

Shipping physical goods from one country to another involves multiple layers of the densest bureaucracy known to humanity.

Consider the relationships involved:

  • Between shipper and receiver.
  • Between the shipper’s and receiver’s banks.
  • Between the shipping company and the shipper and receiver.
  • Between the customs authorities of the sending and receiving countries.
  • Between those authorities and the shipper and receiver.

Each of these relationships involves reams of paperwork … and long lines at various counters in bureaucratic offices.

Now, thanks to COVID and the resulting global shipping crisis, all that is about to change…

Widgets Ahoy

Let’s say you’ve just ordered some widgets from a Chinese supplier for your U.S. manufacturing business.

That transaction involves a complex chain of possession in which multiple parties have a financial interest. At every step, elaborate forms of verification protect those interests.

Your first task is to get your bank to assure the supplier’s bank that you’ve got enough money to pay for the shipment. Only then will the supplier release your order.

Next step is for the supplier to engage a shipping company to collect, pack and transport the widgets from Shanghai to Los Angeles. As part of the deal, the shipper takes care of customs clearance at both ports.

When your widgets finally arrive and clear U.S. customs, the trucking bureaucracy takes over.

First, a specialty port trucker must remove your widgets from the ship and take them to an inland warehouse. A mainline trucker will then collect them from that warehouse and bring them to you.

At every step, various bureaucrats must receive and approve of paper forms — in person.

That’s a time-consuming process. For example, it takes three days to get customs clearance in Shanghai to export a shipping container like the one with your widgets. Much of that time involves shipping agency employees standing in lines at Chinese customs offices.

Things are a little better on the U.S. side, but not much.

Global Shipping’s Unfinished Digital Revolution

The sudden burst of physical goods trade during the pandemic has strained the shipping process. We’re all familiar with big backlogs at ports and shortages of truckers.

But in normal times, global shipping is computerized and efficient. Digital systems use barcodes and RFID chips to track shipping containers and keep a real-time log of where they are in the chain.

Digitized container shipping has played a critical role in the rise of global trade since the 1970s. The elaborate ballet of digital tracking and intermodal coordination gives buyers, suppliers and shippers the confidence to transact. Before that, shipping goods across the world involved the same “guess and hope for the best” approach that characterized global shipping for centuries.

But that’s just the physical part. The bureaucratic part still relies on systems that haven’t changed much since the Middle Ages. There are still people standing in lines at every step.

Shipping’s incomplete digital revolution means that paperwork is a bottleneck waiting to be broken.

Blockchain to the Rescue

On September 9 this year, nonprofit group Global Shipping Business Network (GSBN) announced that its blockchain-based global trading platform had gone live.

GSBN’s system — designed in collaboration with Oracle, Microsoft, AntChain and Alibaba Cloud — was funded by eight global shipping lines and terminal operators accounting for one in every three shipping containers in global trade.

GSBN’S Cargo Release offers a paperless but transparent platform connecting everyone involved at the port of import, including shipping lines, consignees, their agents and terminals. It’s already cutting the time for cargo to be document-ready for release from days to hours. Nobody must present physical paperwork anymore.

Just as it does in the cryptocurrency world, blockchain technology replaces intermediaries and paperwork with an instantly-verifiable — but fully encrypted and private — way to manage the chain of possession and verification that creates trust in global trade.

GSPN’s next step is to integrate trade finance into the process. Once that’s done, global shipping’s digital revolution will be complete.

Get Ready for Shipping’s Digital Future

Investors who’ve targeted shipping companies in the past year have made a killing. But once the COVID crunch is over, those gains will evaporate.

The new gains lie in the coming blockchain revolution in global shipping. But you can’t directly play this trend yet. Rest assured that trade-oriented exchange-traded funds (ETFs) will soon be adding companies involved in it. Here are two you can add to your portfolio in anticipation:

I expect new pure-play opportunities on the use of blockchain in global trade to emerge in the next few years. You can bet my research team and I will be on the lookout for them!

Kind regards,


Ted Bauman
Editor, The Bauman Letter