Digitising cross-border trade will give a real boost to the UK economy. By reducing supply chain cost, delay and risk it can enhance trade opportunity and relieve pressure on consumers. But action is needed now, says Shanker Singham, Digital Trader Services (DTS) consortium partner and CEO of Competere.
With so many issues crowding the government’s in-box, it may seem untimely to be urging Rishi Sunak to prioritise the arcane issue of trade documentation. But I strongly believe that, if we are to reduce consumer and industry costs and prices, improve productivity, reduce the balance of trade deficit, create more resilient supply chains and support British industry – especially our small and medium enterprises (SMEs) – then action is required across the supply chain. The digitalisation of import and export documentation alone can trigger significant benefits and provides a starting point. But the real benefit comes from using technology to move to a system-based border management process, rather than one based on goods moving across lines on maps.
Risk, cost and complexity
UK strategies for economic growth include the desire to accelerate profitable international trade, through Free Trade Agreements (FTA), the establishment of Freeports, and through regulatory reform. FTAs do not, of course, eliminate the need for documentation – traders must still comply with customs processes including showing that the transaction is actually covered by the FTA – but they can greatly simplify the situation.
It’s incredible to many that, in the 21st century, international trade is so dependent on paper-based systems, and the amount of paper continues to increase – one can foresee importing states increasingly requiring evidence around slavery, environmental impacts and other issues.
International container shipping generates 25 billion paper documents each year, according to a 2020 UNCTAD review of maritime transport (1), while the UN Electronic Trade Documents Project estimates ‘paper-stuffing expenses’ at 5-15% of transaction value (2). That doesn’t include the costs and losses of delays, spoilage and so on.
The food and drink industry, with additional requirements for veterinary and sanitary and phyto-sanitary (SPS) documentation, is particularly affected. Last year’s easement for the introduction of new SPS rules on imports from the EU was needed but cannot provide a long-term solution. Instead, the UK is seeking to move from the hazard-based system of the past to a more risk-based system in the future with the adoption of its Target Operating Model. In that context de-risking trade will be crucial. Furthermore, smaller companies are less able to carry excessive administration overheads; the product itself is often perishable and so vulnerable to delay; and producer firms are not only exporting but may depend on timely imports of raw materials and ingredients.
Delays in goods movements could also facilitate crime. Food and beverages were the most stolen commodities on a global scale in 2022, according to the BSI’s Supply Chain Risk Insights report (3) - 17% of global cargo theft in 2022 was of food items, and 9% of agricultural goods.
According to BSI “Every time we have cargo out of place and out of schedule, we see the opportunity for theft to increase. Like if a shipment is moving on a long journey across the continent and may land at port or border crossing, but things are not processing at normal rate, that makes it easier for criminals.” And documentation difficulties are a major cause of ‘out of place and out of schedule’ cargoes. In that context, trusted assurance systems will be key to ensuring that the government has confidence over the flow of trade and has intervention points in case of problems.
As the UK has left the EU, traders who up to this point only dealt in the EU single market and customs union now deal with new customs rules and processes. This increases administrative cost and burden upon them which the UK government is keen to manage.
Facing up to the problem
In fairness, the problem is not being wholly neglected by governments, and the UK has some small claim to leadership. The United Nations has created Model Laws on Electronic Transferable Records (UNMLETR) and, although these have so far only been adopted by Bahrain, Singapore and a handful of small nations, the UK used its Presidency of the 2021 G7 summit to secure commitments by the major economies to progress towards adoption of UNMLETR.
The upcoming Electronic Trade Documents Bill is a good start. This won’t of itself digitise anything (and only covers some of the wide range of documents involved), but it does begin addressing a problem so fundamental that it is rarely recognised – electronic documents don’t exist.
As with most other legal systems, English Law, which is also used in many trades not involving UK companies, has the concept of ‘possession’, and you can’t possess an intangible. Electronic documents ‘exist’ merely as code with the potential to generate a physical document, and to the extent that they have a location, are probably on a server that isn’t owned or controlled by any of the contracting parties. That makes Electronic documents as intangible as they come. So, with a few exceptions under the Electronic Communications Act and the Carriage of Goods by Sea Act, and although agencies may make administrative decisions to accept electronic communications, more work is needed to guarantee that purely electronic documents will be recognised by the courts.
And without doubt, electronic documentation is needed. Costs, delays, errors (through rekeying, or poor scanning) and inefficiencies that paper-based trade create for firms, consumers and indeed for government agencies can be intolerable. Already, many companies, large and small, operate many or most of their procedures, sometimes globally, entirely electronically: it may well be that the only occasions on which data is printed out are to generate import/export documents.
The positive is that the world is moving towards electronic documents and digitisation of processes. Many of these will have to be trialled, as the UK develops its digitised border. In addition, the role of trust will be much greater as the UK and others also move away from customs processes attached to specific transactions to a more systems-based approach. The EU is also moving in this direction
As part of government’s UK Border Strategy, the government is proposing a ‘Single Trade Window’ which will be a single gateway for all data from traders into government’.
And whilst official reliance on paper dies hard, change is vital to stay in line with today’s businesses. The former MP and current Marks & Spencer Chairman Archie Norman observed recently: “Retailers already operate in real-time digital information – day or night, at the click of a button, we can locate our products, be that in a depot, in transit or in store.
As, by one estimate, there are 36 government organisations and departments involved in border management and policy, the Border Strategy is a significant step forward.
Technologies already exist to push on at pace
To have any chance of backing up its public commitment to “a digital border for goods, services and individuals from 2025”, and achieving the benefits it would yield, speed is needed. Fortunately, many or most of the required techniques and technologies already exist or are being developed.
E-document techniques are already well established and widely used across industry: the same industries and often the same data that are involved in border crossings. Readily achievable, given the right legal environment and operating model, are, to name just some, the use of Smart contracts, e-invoicing, optical character recognition (such as Automatic Number Plate Recognition), blockchain-based systems to assure supply chain visibility and integrity. The business model can embrace the concepts of Ecosystems of Trust, a Single Trade Window and ‘tell us once’ routines. The model can also be designed to help the small, occasional or ‘one time’ trader. Platforms such as Atamai Freight, from Digital Trader Services, are already helping to improve supply chain management.
If most cross-border trade can be securely cleared, electronically, in advance, then border resources can be focused on the ‘difficult’ cases and ‘intelligence-led’ interventions.
Of course, it takes two (or around 200 trading nations) to tango, but it is worth noting that the EU’s Union Customs Code, although delayed in its implementation, is intended to follow much the same principles, especially a high degree of digitalisation, and the use of Trusted Trader schemes. The work of the Wise Persons Group in the EU on border management has pushed strongly for a move to systems-based approaches where trust in the trader is the all-important way of “lifting the haystack”.
For any company using a fairly basic MRP system (with a few standard add-ons such as purchasing), almost all the information required at the border already exists electronically. If governments request the change, it is a safe bet that the software companies will release modules to comply with the border requirements. Benefits should follow in short order.
So, despite the PM’s busy in-tray, focus on a digital approach would quickly yield real and tangible benefits across a wide range of other agenda items. Simpler and digitised procedures will boost trade – and enable trade for SMEs. It will reduce costs for processors and producers, reduce risks of delays in supply chain and the consequential loses including waste of perishable produce. Ultimately it will feed through into lower prices for consumers, which is vital during turbulent economic times.
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