Cutting Both Ways: The Potential and Downfalls of Technology

Technological improvements have the potential to increase efficiency and open up new markets. Technologies such as artificial intelligence (AI) and blockchain will impact the future of trade as these advancements can vastly improve the aggregate supply for many industries, promoting lower prices and higher output. Because of this, BCG’s Henderson Institute estimates that in total ‘digitally enabled’ trade is worth between US$800 billion and US$1.5 trillion.

However, technology also poses a threat to trade as some technologies may disrupt current patterns of production and trade – shortening supply chains and creating greater autonomy between individual countries. The net effect of technology could reduce the value of trade down to only US$400 billion.

This threat can be minimised, however, by the implementation of domestic policies by government officials to draw away from the threat and instead take advantage of technology.

The role of policymakers to minimise the threat technology brings will be integral towards the future. With a non-standardized and continuously tightening policies regarding technological trade (specifically in cross-border data transfer), comes a future of fragmented economies that may close off the trade of services between countries.

Increasing Efficiency with Artificial Intelligence

Artificial intelligence will lead the way in cutting costs and increasing efficiency. With the implementation of autonomous vehicles, robotics, IoT sensors within different steps of the process along the logistic chain from shipper to recipient, expect a significant increase in efficiency as AI is being implemented gradually. 

Some examples of trade-specific implementation within the logistic chain include autonomous ships, land vehicles, drone delivery, logistic management, ports, and warehouses. 

Ships

The ‘unmanning’ of cargo ships could see a 6% reduction in fuel consumption alone, as well as a 5% reduction in construction costs.

Land Vehicle

Autonomy has the potential to reduce costs by 45%.

Drone Delivery

The operation costs of autonomous drones delivering parcels are 70% lower than van delivery.

Logistic Management

As automation progresses, logistics costs may fall by up to 40%.

Ports

Platforms to predict ship arrival at port can reduce waiting times by up to 20%.

Warehouses

By 2023, up to 65% of warehousing will be automated paired with data analytics that could increase capacity by 20%.

E-commerce:
The Main Driver of Global Trade

From 2019 to 2020, the global retail market grew by 4.5%, whilst the e-commerce market grew by 18%. E-commerce is a game-changer for the retail industry and also stimulates trade between countries as it promotes convenience and availability. Our report also found the shift of e-commerce from the West and the East.

Blockchain to Improve Compliance

There is a potential for blockchain to be utilised within the trade industry that could not only drop costs but could open up the market to more players worldwide. With the use of IoT sensors and blockchain technology, documents that are crucial in trade would be vastly simplified and discounted with the use of smart billing.

Smart billing utilising blockchain is capable of replicating the bill of lading which is typically expensive and troublesome. The first use of the smart bill system only costs USD $15, a reduction of 90% on the average total cost of issuing and handling this process. This opens up the possibility of cost reductions and allows smaller businesses and exporters to compete.

DMCC Industry Digitalisation Index

With more and more companies relying on technology for day-to-day operations, it is important to measure the growing use of technology within sectors to have an overview and a benchmark to track the change of digitalisation across different industries. DMCC’s Industry Digitalisation Index (IDI) is measured by taking into account four separate functions of digitisation, upstream supply chains, downstream supply chains, production, and digital infrastructure.

There seems to be a high variability between the four separate functions of digitalisation. Digital infrastructure (scoring 78 out of 100) is vastly more digitalised for industries across the board whilst downstream supply (scoring 22 out of 100) seems to be the least.

Recommendations

Business

  • Invest in technologies to reduce trade costs and increase efficiencies.
  • Take advantage of new, competitive, digital platforms that facilitate trade and open new markets.
  • Take the lead in driving domestic regulatory change to allow the implementation of technologies that facilitate trade e.g. acceptance of electronic trade documents, blockchain etc.
  • Contribute to the development of international agreements and standards on interoperability, data, and other aspects of trade and technology.

Government

  • Work with business to identify obstacles to trade that could be eliminated by technology and embrace the regulatory changes necessary to allow technology to facilitate trade.
  • Prioritise investments into digital infrastructure and digital skills development to drive trade and economic growth through the 2020s.
  • Invest in retraining and reskilling workforces to mitigate the negative impacts of technology on the economy and specifically on jobs.
  • Cooperate at the international level on data and e-commerce which will be essential to global trade in the next decade.

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