While the concept of blockchain was first discussed more than forty years ago, in trade it is only in the last decade that we have seen concrete developments and deployments.

It has been through the full hype cycle, from early interest, through overexcitement and disillusionment, to a point where, today, blockchain is increasingly seen as a foundational technology with a variety of use cases.

But could it be more than that? To understand what the future holds for blockchain, it is worth considering what has changed since those early days and looking at how Customs authorities are implementing it today.

It is not hard to see why blockchain elicited such initial interest towards the end of the 2000s and early 2010s. A shareable, immutable way of holding data, accessible by multiple parties and not reliant on a central authority, the potential use cases for an industry such as trade were significant.

Trade, and by extension Customs, is a document-heavy industry. As one report on the digitalisation of trade notes, “The functioning of international trade is based on several overlapping flows,” of which one is “documentary…that allow these goods to move and pass the various controls in order to arrive at their destination.”^[1] The same report estimated that a single cross-border transaction requires an average of 36 documents and 240 copies of these very same documents, with less than 1% of them being fully digitised.^[2]

That is a large amount of paper that has to be created and shared across multiple parties, including Customs organisations, all with their own processes and ways of working. It is a system that is fragile, prone to inaccuracy, slow and expensive. It also has a significant environmental impact for an industry that has sizable sustainability regulations on the horizon.

While several organizations started working on the digitalization of trade-related documents, the question remained of how to collect and share that data among parties while ensuring data quality and immutability, improving productivity, and driving down costs.

As such, the introduction of a technology such as blockchain offered both private and public sector parties a potential solution.

With the growing interest in this emerging technology came a wave of start-ups. Companies such as OriginTrail,^[3] ShipChain,^[4] Chronicled,^[5] and CargoX launched in the mid-2010s, using blockchain to solve specific use cases, from end-to-end visibility to custody transfer, cargo provenance to creating smart bills of lading and decentralising data sharing.

This was followed by blockchain-based services backed by established industry players. TradeLens, a joint venture from Maersk and IBM announced in 2018, was the most prominent, while other initiatives, such as Walmart’s Food Trust, Tradeshift, and a consortium involving NYK and NTT Data also launched.

There were also a number of government-backed initiatives, with Dubai running several pilots on trade document exchanges and Singapore Customs developing a framework for electronic transferable records.^[6],[7]

These early initiatives helped fuel speculation on how much value the technology could unlock; in 2017, Gartner predicted that the “business value-add of blockchain will grow to slightly more than $176 billion by 2025, and then it will exceed $3.1 trillion by 2030.”^[8]

Yet, for all the big announcements, there appeared to be relatively little actual progress. As an emerging, untested technology in a traditionally conservative industry, blockchain was always going to struggle to secure the sort of mainstream acceptance expected, considering the level of hype it generated. When that didn’t happen immediately, interest diminished, and without significant traction, start-ups folded, pilots failed to progress to full-scale rollouts, and even TradeLens was discontinued. A narrative emerged that questioned whether blockchain was a solution searching for a problem.

Yet in many ways, this is the natural journey of nearly any new technology. Once the excitement fades, reality sets in, and with it comes the understanding of what is genuinely possible.

As organisations have worked out where blockchains can be deployed, they start to understand the limitations and capabilities of the technology. This is where pilots and proof of concepts shift to full-scale deployments, as long as they follow two key considerations.

First, for blockchain deployments to work for organisations such as Customs authorities, there needs to be a degree of standardisation. One of the key selling points of blockchain was interoperability, that it can connect with existing systems to enable the flow of data.

But for this to be achievable requires the development of standards. Organisations such as the World Customs Organization (WCO) and the Digital Container Standards Association (DCSA) have spent years working on standards, either for blockchain directly, or which informed blockchain initiatives as a by-product.

Second, that there is not a single type of blockchain, but multiple approaches: public, private and hybrid.

Public blockchains are closest to the concept that first caught the imagination more than a decade ago. They are transparent, neutral and decentralised and, by their very nature, open, otherwise known as permissionless. Their use raises concerns around confidentiality, performance and how they can be compliant with regulations in certain industries.

Private blockchains are closed and kept within organisations, thereby removing concerns around confidentiality, and can be built to be compliant with relevant regulations. Access is based on permission. They are also centralised, restrict access and are only transparent to those already part of the organisation.

Hybrid blockchains combine elements of both; they can contain both public and private entries, with decisions made on what is available publicly and what is not. Private elements can be used to process transactions securely, while public aspects allow for transparency and greater decentralisation, reducing the risk of any one party controlling the blockchain.

What determines the approach is the use case.

The WCO previously identified several blockchain use cases in Customs, including Customs-to-Customs (or inter-agency cooperation) data exchange, Customs declaration and tracking regulatory compliance.^[9] More specifically:

• Customs-to-Customs (c2c) data exchange – Sharing data between government agencies is notoriously challenging, particularly when it is advanced information relating to the status of inbound cargo, or information related to a company between Customs having signed a mutual recognition agreement of their authorized economic operators. Sharing data through a blockchain platform establishes a layer of trust; the blockchain acts as a neutral party, through which information is exchanged at the relevant moments. Unique identifiers for all parties improve visibility and support integration into Single Window environments, reducing confusion in situations where different agencies assign the same parties different labels.
• Customs declaration – Customs declaration documentation is laborious and drawn out, requiring the collation of data from multiple, distributed sources, often manually. This increases the risk of inaccuracies and, ultimately, compliance. Blockchain applications collect all the information required into a common ledger, allowing declarants to have a clear view of the data’s provenance when pulling the information required for a declaration. This increases accuracy and reduces the workloads and administrative burdens on all parties, helping to accelerate faster processing.
• Tracking regulatory compliance – Every country has its own regulations, meaning that anyone involved in the movement of cargo has to provide different types of data at different stages of the journey. This leads to duplication of effort: the same information is often required in multiple forms and systems, which often require manual input. Blockchain platforms act as a repository of data, which Customs authorities access to extract the information they need to ensure compliance with relevant regulations.

This is not theoretical; blockchain is being used to enable these use cases, and not just in pilots, but full deployments. One example is Egypt’s NAFEZA, a national Single Window for international trade, which uses blockchain as a foundational technology that can transform Customs processes.^[10]

In the first year of operation, the Advance Cargo Information solution deployed in Egypt supported 4.5+ million import transactions, with no loss of documents and participants reporting major cost and time savings, as well as an immediate 13% increase in tax revenue collection.

Today, a total of 81 Customs posts use the ACI solution. The results include:

• average cargo release times dropped from 29 days to under six days for importers.
• compliance costs now a maximum of US$ 175, down from US$ 600+.
• reduced document fraud and mishandling incidents.
• optimised six document flows by integrating 26 agencies and removing 11 redundant documents.

With these use cases and deployments, blockchain is demonstrating where it has value: as a foundational technology. This is significant progress considering the journey it has been on to date.

Yet, while specific use cases and demonstrable impact in focused deployments are valuable, there is a limit to their value if they remain in silos. If an authority only uses blockchain for Customs declaration, for instance, then there is a ceiling to how much benefit it will unlock. To go beyond that point requires thinking about not just how we want to deploy blockchain across multiple parts of the Customs process, but what we want trade as a whole to look like.

For example, do we want to reach the point where data can be transferred between separate blockchains? In theory yes, and it has already happened: CargoX and Enigio transferred a FIATA electronic bill of lading between the former’s public blockchain and the latter’s hybrid approach.^[11]

That was between two private sector organizations. Is it something that customs authorities will want to do, even if it is technically possible? While it makes sense on paper, the regulatory concerns, as well as questions surrounding data sovereignty, may mean that it remains a pipe dream. In that instance, the future is likely to be less blockchain everywhere and more blockchain where appropriate.

What does this mean for the future of trade? Ultimately, everyone wants secure trade that is economically beneficial and supports their strategic goals, including meeting sustainability targets. Many parties, from governments and regulators to private sector organisations, understand that to achieve that means digitising processes where possible.

For Customs, this digital trade facilitation could deliver both the security and efficiency they are responsible for. No agency would compromise national security for increased trade flows, but the right digital deployments can deliver both. Digital trade corridors, for instance, enable the exchange of data between customs authorities while using a neutral third party. Blockchain would be used by both authorities, via the third party: everyone benefits from the immutability and interoperability needed, without the technical and regulatory challenges of all parties using the same systems.

Blockchain has evolved significantly from its early days. As the hype fades, Customs authorities can see how it will have an impact. As more deployments generate value, we shall see more adoption of the technology. In those instances, we will see not just what blockchain does well, but hints of what it could do in the future, if single deployments were connected into larger ecosystems. Blockchain is not a one-size-fits-all solution, but it can be an enabler of Customs transformation, acting as a secure, trusted foundation on which Customs authorities can facilitate digital trade.

[1] p14, Challenge and opportunities of digitalisation of international trade, International Chamber of Commerce: https://www.icc-france.fr/wp-content/uploads/2022/09/ICC_France_WhitePaper_.pdf

[2] p9, Challenge and opportunities of digitalisation of international trade, International Chamber of Commerce: https://www.icc-france.fr/wp-content/uploads/2022/09/ICC_France_WhitePaper_.pdf

[3] https://origintrail.io/ecosystem/roadmap

[4] https://unlock-protocol.github.io/ethhub/built-on-ethereum/supply-chain/shipchain/

[5] https://iottechnews.com/news/chronicled-launches-open-registry-iot-ethereum-blockchain/

[6] https://mag.wcoomd.org/magazine/wco-news-91-february-2020/dubai-Customs-introduces-blockchain-based-platform-to-facilitate-cross-border-e-commerce/

[7] https://smartmaritimenetwork.com/2019/03/08/singapore-to-develop-blockchain-based-trade-documentation-infrastructure/

[8] https://www.gartner.com/en/documents/3627117

[9] https://www.wcoomd.org/-/media/wco/public/global/pdf/topics/facilitation/instruments-and-tools/tools/wco-wto-joint-report/wco-wto-study-report-on-disruptive-technologies-en.pdf?db=web

[10] https://mag.wcoomd.org/magazine/wco-news-99-issue-3-2022/egypt-adopts-innovative-trade-document-exchange-system/

[11] https://cargox.io/content-hub/cargox-and-enigio-partner-with-lloyds-bank-and-icc-c4dti-for-blockchain-interoper