5 reasons consumers will embrace artificial intelligence

Christmas 2017 was a busy one for retailers. During peak season, Amazon reported records for holiday shipping as they handled deliveries to 185 countries. UPS, meanwhile, said it was breaking records on package returns, having processed more than a million daily in December. With a 23 percent global growth in the last year, e-commerce continues to post solid performances, but stress and confusion are routine for merchants, logistics companies and consumers. According to a UK survey, over half of Christmas parcels failed to turn up on time in the run-up to Christmas, and parents panicked as popular Christmas toys sold out at the UK’s biggest retailers.

Artificial intelligence can help bring order to this chaos. Here’s how:

On-time or faster deliveries through AI

Delivery delays and out-of-stock items cause consumer frustration. Wouldn’t it be ideal if companies knew who was likely to buy what and when? Supply chain professionals could then make sure they had the right manpower, warehouse and transport capacities, or even send goods to be stored close to delivery addresses before we buy them (a process known as “anticipatory shipping”). Amazon has been experimenting with AI for years – for example in its cashier-less store – but other companies are close behind. Otto, a German e-commerce merchant, has created a system that analyses around 3 billion transactions and 200 variables, including sales data, website searches and weather information. With 90 percent accuracy, it is able to predict sales behaviour in the next 30 days. Now, the company purchases around 200,000 items a month without human intervention. Surplus stock has declined by a fifth and product returns by more than two million items a year. While customers receive their orders more promptly and efficiently, the planet benefits too, as fewer shipped packages need to be sent back.

Consumers get what they wish for

A major challenge in the supply chain is predicting next season’s hit products. Merchants have to make choices early on, and accept the risk that their stockpiled goods may not be bought. On the other side, consumers also have to hope that retailers have in stock what they want to buy. Supply-demand uncertainties and mismatches are costly and inefficient for all participants. Brand reputation is at stake, and consumers pay a higher price to cover the risk. One AI-powered approach is dubbed optimised line planning, which integrates data such as internal sales and customer records, competitive intelligence, trend analysis and social media preferences to create a customer profile or persona. This customer segmentation allows retailers to determine the selection of products that will resonate best with each persona. Designers can create placeholders for next season, and even calculate expected revenues. This provides confidence that both sales targets and the needs of the consumer will be met.

Goods travel safely

When supply-chain professionals know what is happening, they can ensure packages will arrive despite any adverse conditions. The Tel Aviv maritime data provider Windward says it is able, through AI, to predict shipping safety worldwide. The Israeli startup signed a deal with London-based insurance market Lloyd’s in November 2017, with Windward providing Lloyd’s member companies software that forecasts maritime hostilities or accidents at sea. Flextronics International – which counts Apple, Microsoft and Ford Motor as customers – has pioneered software that generates real-time alerts of supply-chain disruptions throughout its 14,000-strong network of global suppliers. The AI-based system helps predict actual and potential problems, such as supplier delays, strikes, earthquakes or tsunamis, and allows the relevant teams to make informed decisions to keep inventory moving and consumers happy.

Fewer goods are stolen

Some orders don’t arrive due to crime. The FBI estimates that cargo theft costs US businesses more than $30 billion each year. Facial recognition and the detection of suspicious behaviour can help prevent this. At the Chinese AI research company Yitu Technology, the pass cards of staff and visitors taking the lifts to floors 23 and 25 are read automatically – no swipe required – and each passenger is deposited at their specified floor, and only there. Cameras record everyone entering the building, and track them once they are inside. “Our machines can very easily recognise you among at least 2 billion people in a matter of seconds,” says Yitu co-founder and chief executive Zhu Long. Yitu’s generic portrait platform already contains 1.8 billion photographs of those logged in the national database and everyone who visited China recently. 320 million of the photos have come from China’s borders, where pictures are taken of everyone who enters and leaves the country. This cutting-edge technology can be used to protect any kind of asset – from vehicles to shops, to warehouses and even entire cities. In Boston, intelligent security cameras are even anticipating crime. The security system monitors feeds in real time and alerts authorities the moment it identifies unusual activity.

Quicker and better customer service

According to a survey conducted by Genesys in 16 key economies, the cost of poor customer service is estimated at $338.5 billion per year. Consumers disappointed when drivers don’t show up or products are sold out can still be satisfied when they can act based on timely and correct information. AI tools can speedily provide proper information to customer service staff, and improve customer-agent conversations without replacing them (chatbots have been shown to thus far lack empathy and problem-solving capability). At the same time, digital voice-activated assistants could provide an opportunity for progress – just imagine you ask: “Contact DHL and find out when my order will arrive,” and your digital assistant connects to a chatbot, finds the information and gets it to you promptly. The assistant would soon even be able to use your voice, if required. A paper published by Google in December 2017 reveals details of a text-to-speech system called Tacotron 2, which claims to be able to replicate near-human accuracy when imitating a person speaking.

These developments don’t come without risks. Concerns about job losses and out-of-control machines that have the potential to teach themselves are daily topics in the news. As AI-enabled robots have started to work alongside humans as autonomous vehicles, security cameras and digital assistants, some experts have said they should be fitted with an “ethical black box” to keep track of their reasoning, and enable them to explain their actions when accidents happen – such as the fatal self-driving car crash of a Tesla Model S in May 2016. Others think the behaviour of robots should be viewed similarly to that of humans, which often remains a mystery. While there are many voices urging caution, there are also positive ones. Stephane Kasriel, the CEO of Upwork, predicts “that there will not be a shortage of jobs in the future, but rather a shortage of skills to fill the jobs“. History has taught us that, over time, concerns with respect to new technologies will be addressed so that consumers can reap the benefits.

AI is on the rise and is sure to enter into many parts of our lives. Considering the impact it can have on consumer satisfaction, it would not be surprising if consumers not only embraced the intelligent supply chain but demanded more AI solutions in the purchasing process. Meanwhile, investors soon may no longer fund businesses that aren’t planning to incorporate AI in some form.

Image: Andy Kelly/Unsplash

This article was originally published at the World Economic Forum Agenda.


3D-printing might not kill global trade after all. Here’s why

One of my biggest concerns are fears rooted in overhyped topics. Although I very much believe in the benefits of advanced technologies like 3D-printing, we need to be mindful about the risks we are taking by overstressing their impact on traditional sectors and in particular jobs. Of course 3D-printing will support – in combination with other technologies – distributed manufacturing and hence contribute to reshaping the supply chain but in a way which leaves clearly room for international trade and transport.


Last year Adidas has opened its first 3D-printing plant for sports shoes – its highly automated, so-called ‘speedfactory’ – in Ansbach, a small town in Bavaria in the south-eastern part of Germany.

The German sports-goods company announced similar plans for Atlanta in the US, as well as other Western European markets. In the mid-run these factories will each manufacture half a million pairs of shoes per year.

3D-printing based production – also known as additive manufacturing – helps to bring factories closer to customers and products faster to the markets.

Traditional production can require a one-year process for design, sampling and large-scale manufacturing.

The new way requires, at its best, only days – reducing lead times on average by 66%. The shorter the cycle, the more retailers can place orders based on actual sales instead of estimates. Suppliers deliver what is really needed. Finally, consumers get what they want.

Eventually, consumers will be able to have goods produced by a printer near to them, ready for pick up, or have goods delivered, or printed at home, if a printer is available there.

It’s not all about speed

Distributed manufacturing is the name of the concept, and it reduces inventories and carbon footprints. In addition, 3D-printing makes very different and new product designs possible.

Unsurprisingly, companies like Adidas and Nike want to turbocharge their supply chains. The goal is to be short and fast.

But Adidas says that, in parallel to its speedfactory-based, short and fast supply chain, it will also expand its traditional, longer and slower supply chain.

1. The economics for 3D-printing-based mass manufacturing don’t yet work out.

Many experts doubt that they will in the foreseeable future either.

The unit costs for thousands of mass-produced, identical parts, like industrial components are still simply much lower than those manufactured by any other means.

3D-printing also falls short where natural fabrics like leather, cotton, wood and stone, or marble, granite, and minerals, such as rare earths, are needed – either to ensure the functionality of a product, or because they are just demanded by the customer.

Therefore, it might well be a myth that 3D-printing will replace mass manufacturing by mass customization, even in the midterm.

Adidas plans to grow its global athletic wear sales from $290 billion in 2017, to $355 billion in 2021. These additional sales will hardly be reached through the application of just one technology.

Reaching the target will require a mix of technologies and supply chains. Furthermore, moving the manufacture of all 301 million pairs of shoes Adidas produces each year to new sites – not even counting its double digit annual growth – would imply tremendous effort, cost and risk. The investment would be very high: just imagine the number of new speedfactories needed.

2. The technology works best for personalised goods

3D-printing generates significant value in the field of highly personalised goods and to meet demand for smaller quantities at affordable prices.

Parts can be printed on demand, obviating the need for storage.

Boeing deploys 3D-printed parts in jet engines and the technology could save the manufacturer $3 million in construction costs on each B787 jet it builds.

Deutsche Bahn has started to print spare parts to accelerate maintenanceprocesses.

Daimler uses 3D-printing to personalise parts and vehicles, and manufacture smaller batches for automotive customers.

In healthcare, 3D-printing applications range from brain and organ models, to personalised plaster casts and low-cost prosthetic parts. But an example for a global scale supply chain is lacking.

The opening of the speedfactory can be considered a Kitty Hawk moment in the history of additive manufacturing. It is an example of highly automated production in high labour cost countries.

But the most popular technologies currently used in 3D-printing were developed in the early eighties. We still might need to wait some time before we see the first mass-manufactured, 3D-printed jet plane taking off.

3. Personalisation changes the game – but not entirely

One in three consumers wants personalised products, a Deloitte study finds. And this trend will drive major change in global supply chains.

But Mark Zuckerberg still buys only one piece of cloth – a grey T-shirt, he wears every day – and so do millions of consumers.

One-colour sports shirts do not need to be manufactured at the place of consumption, as high-speed delivery is not a prerequisite for success. And this is valid for most long-lasting consumer goods, which represent the major part of today’s consumer demand.

Only designer goods and fashion require a high level of convenience, flexibility, speed and regularly changing models.

However, smart design enables personalisation by using mass-produced parts to produce a broad variety of different models. Different luxury bags of the same brand can be made of the same parts – just stitched together in different ways.

Postponement is another way to enable personalisation in mass-production: by dividing the manufacturing process into the two phases of manufacturing base products and then customising base products.

The base products are mass-manufactured, while finalisation happens in or close to the market.

Postponement pushes the finalisation of a product down to the end of the chain – for example, the colour and certain parts come last. This is a process commonly used in the automotive industry.

3D printing will complement this practice by enabling unique parts to be added at the end, while the base product will continue to be mass-manufactured in traditional ways.

4. Manufacturing technology and customer wants are not the only factors at play

Supply chains are shaped by many factors.

First, different supply chains – fast and slow, short and long – respond to different needs: from bringing resources to the factories near consumer markets, to moving parts through global value chains, to connecting the different players within industrial clusters.

Second, many external factors shape supply and value networks. Among these are geopolitical risks, the availability of skilled workers, the quality of infrastructure, tax considerations, the cost of land and energy, the time and effort to obtain licences.

Different locations have different capabilities, possibilities and brandings: ‘Made in Germany’, for example, is a unique feature, which can hardly be globalised.

These factors not only determine the design of global supply chains, but also the speed and magnitude at which technology-driven nearshoring can advance.

Third, the capacity to manage change and complexity is limited.

Changes can have huge implications – the workforce needs to be taken into account and assets might not have been written off or amortised yet.

Management needs time and energy to keep its focus on customers and markets and ensure the stability and smooth continuation of the business.

Fragmentation has its limits.

How many sites can a management team successfully manage in light of an increasingly complex and competitive business and operating environment?

Focus has major benefits; therefore, management will always seek a certain level of aggregation and concentration of activities and efforts at certain locations to ease the management burden.

Companies will continue to test new technologies and apply them where it makes sense.

3D-printing is one useful enabler to respond to customer needs and wants; an important tool for designers, operations and supply chain managers. The technology will surely further improve and so will other manufacturing technologies.

Long supply chains will still have their role to play. And so will international trade, which helps to keep diverse global production networks going.

In summary, 3D-printing holds high potential in those areas where it is a good fit. But, for now, its revolution has clearly not yet come.

This article was originally published at the World Economic Forum Agenda.

Why blockchain should be global trade’s next port of call

This paper examines the suitability of blockchain and blockchain-based distributed ledger technology (DLT) to the port, harbour and terminal industries. DLT has the potential to drastically change the world of asset transfer, asset movements and security of data movement. Testing of various DLT applications has already started – first in 2009 with the emergence of Bitcoin in the financial services industry, then subsequently in various other fields, including within the supply chain.


Anyone working in the port, harbour and terminal industries needs to understand the potential impact and implications of blockchain – in business, in respect to government interactions and along the supply chain. The technology has the potential to change the way parties operate and interact along the value chain as well as to open doors for new players. Some intermediaries might be impacted, others may be left out of the game.

What is ‘distributed ledger technology’?

Also known as DLT, this data-sharing system allows for distributed and real-time multi-party tracking, digital “bills of lading” and letters of credit, machine-to-machine interactions, and better visibility of assets and liabilities. Smart contracts, digital wallets and secure digital asset and information transfer could ease maritime operations, unlock new opportunities for all parties and reduce risk. With this, significant amounts of paper could be cut out of processes.

Capturing the potential of DLT and blockchain requires not only an understanding of the technology and its implications for the port, harbour and terminal industries, but also pioneering and collective efforts to develop the applications and a new gold standard in business to jointly bring the traditional industries to the next level.

Blockchain for ports

The port, harbour and terminal business sits at the crossroads of the majority of global trade routes, making the sector one of the key enablers of the global supply chain; however, I believe it can also sit at the crossroads of blockchain.

The supply chain is about processes from design to the extraction of raw materials, to production and the movements and storage of goods down to repurposing, including the related flows of capital and data. The fluidity of flows across the supply chain ecosystem determines time required and cost incurred. In turn, fluidity depends on the seamlessness and integrity of the processes – seamlessness means the least number of steps and the highest level of digitization and automation. Most importantly however, it stands for integrity and authenticity of information as the basis of trust among all parties involved.

Image: IBM

An introduction to blockchain

Blockchain became known as the core technology behind bitcoin – the first decentralized crypto-currency – launched in 2009. Although blockchain has initially been thought about mainly from a financial services perspective, the technology can serve as a basis for many useful applications and manage information far beyond monetary transactions. Blockchain technology is a leapfrog technology intended to reinvent markets. Jeremy Wilson, vice-chairman of Barclays Corporate Banking, said blockchain could even become a new operating system for the planet. That is the level of technology about which we are talking.

Blockchain is a cloud-based kind of global spreadsheet or distributed ledger of transactions. Blockchains run on computers provided by volunteers around the world. Therefore, there is no central database to hack. The blockchain is public and encrypted. Although nothing is unhackable, it is extremely difficult to remove, duplicate, manipulate, tamper or copy records. Therefore, blockchain means that we can collectively trust what happens online.

Blockchain is one type of distributed ledger. But distributed ledger technology (DLT) stands for blockchain-based DLT, and both terms are used simultaneously.

New source of trust

What if information such as the provenance of goods, tariff codes, classification data, import/export data and certificates, manifests and loading lists, customs values, status information, and all other information about goods within the supply chain ecosystem was available for all parties involved at any time and everywhere? Then, the vision of a transparent, secure, paperless supply chain would have become a reality. It is blockchain and DLT that can bring track and-trace, visibility and transparency to the next level.

DLT is suited to logging and monitoring data, such as parts in the automotive supply chain or containers moving in ships, planes and on other transport devises around the world. Today, customers and buyers have limited visibility and, even more so, ability to validate the true value of products and services they wish to purchase.

Lack of transparency along the supply chain causes various concerns, including that the prices paid might be an inaccurate reflection of the true value. On the other hand, limited transparency also causes risks for manufacturers and brands resulting from illicit practices and the environmental impact that comes with certain forms of production.

DLT and blockchain can help to reassure consumers, mitigating and eliminating risks around food security, conflict minerals, counterfeit goods, forced and child labour, corruption and so forth. In the world of DLT, everyone can watch what is happening, whether they’re consumers, business partners, governments or watchdogs.

Pioneering names

There are many pioneers in the field of DLT and blockchain. Provenance, for example, applies DLT to help companies to build trust across the supply chain by making it transparent where products were made, by whom and with what environmental impact. The company BlockVerify also helps companies to fight product counterfeiting.

Everledger assists companies in recording and tracking the movements of diamonds from the mine to the store. Traditionally, buyers rely on paper, which can be changed or tampered. DLT allows the recording and accessing of unchangeable information and history – any time and everywhere. Everledger is one of the first users of IBM’s blockchain platform aimed at the supply chain. IBM’s partnership with Walmart to track lettuce, steaks and snack cakes from farm and factory to the shelves is one of the biggest practical tests to date, while Maersk has teamed up with IBM.

The goal for both is to develop a blockchain solution to help manage and track goods and the paper trail of millions of shipping containers by digitizing the supply chain process to enhance transparency and the highly secure sharing of information among partners – shippers, freight forwarders, ocean carriers, customs authorities, and ports. The solution, which is expected to be available later this year, has the potential to save the global economy billions of dollars.

The whole world of commerce and trade is about to be rethought and redesigned. Barclays reported the first blockchain-based trade-finance deal in September 2016. The process, from issuing to approval of the letter of credit, usually takes between seven and 10 days, but could be reduced to less than four hours. Flexport, a provider of software to manage global trade might one day help businesses to monitor re-order cycles and plan future shipments, which would allow them to instantly replenish their inventory when they run low – even through placing orders from M2M.

Smart contracts and e-wallets

When combined with other advanced technologies, such as the internet of things (IoT) and artificial intelligence, DLT and blockchain unfold their full potential. Combining DLT with IoT allows ships to autonomously contact suppliers and place orders for example when low on energy to schedule cycles to take advantage of electricity prices.

Thanks to DLT, machines can do business with machines. Blockchain brings automation to the next level. Electric vehicles can pay recharging, truck parking, tolls and fuel fees based on smart contracts with a blockchain-enabled digital wallet. E-wallets can also collect fees for equipment-sharing. Smart contracts are agreements between parties stored on a blockchain. Smart contracts work on the basis of standard templates and can, for example, refund deposits and perform instant collection of taxes as well as take over the burden of regulatory reporting.

Paperless and high speed

Putting documents on the blockchain brings significant advantages. Maersk has been participating in a proof of concept, with blockchain expertise from the IT University of Copenhagen, to digitize the bill of lading. Eliminating piles of papers speeds up processing and reduces costs and risks. A shipment of roses from Kenya to Rotterdam can generate a pile of paper 25cm high, for example.

Furthermore, prior to arrival, ships can send digital, autonomous and secure papers, documents and information to port authorities, security departments, customs, terminal operators and all other parties involved in port operations. At the port, artificial intelligence-based tools, such as auto-document verification tools can speed up the processing of the submissions.

Improved security and asset control

Facial recognition technology can improve and accelerate access controls and crew checks in ports and save time and money, while raising the level of security, as DLT contributes the digital identity. Terminal operators and other asset operators can log and monitor assets and devices such as trucks, chassis, scanners and any kind of equipment on the blockchain, which offers in this way attractive cost savings, through security and efficiency gains. Sharing of assets in the port will become safer and easier.

New players, new business

Blockchain-based open and secure platforms can also bring smaller businesses to the port, either to perform tasks in the terminals or as customers operating in the port. They can easily access the port services and connect with others via the digital port platform. Digital peer-to-peer collaboration tools and payments ease doing business.

D-printing facilities operated by ports might offer a new form of safe production and an additional revenue stream. 3-D printing combined with blockchain allows the creation of secure digital memories for each product and each part of the product. The immutable records from the source of the raw materials used, to where and how products were manufactured, to their distribution, maintenance, repair, recall and recycling histories can be a vital component of the new source of trust.

Standardization is crucial

The joint development of standards is critical, whether on industry, national or global level to avoid conflicts between different standards and ensure the optimal outcome. Standardization of blockchain involves terminology, development, deployment and security. In the supply chain and transport industries, the consequences of missing standards are well known. For example, the desired smooth exchange of data – which eases collaboration, allows instant and better responses to disruptions, and drives optimization and security throughout the supply chain – is hampered by the lack of shared data formats and technical transfer options.

In times where many physical products are digitized and almost every physical process is replicated on the digital layer that has largely taken control over the tangible world, cybersecurity has become vital for businesses, governments and the security of our lives. Boards have to take action. Companies need to recruit C-suite experts who take the board onto the journey of cybersecurity – starting with setting the board agenda. The supply chain, logistics and transport industries, including the ports, need to play an active role in the process of standardization and security.

Towards a digital future

Blockchain offers the opportunity to create a global platform of performance and trust; however, scaling the technology still requires overcoming some hurdles. First, blockchain protocol(s) used to secure the ledger of global trade and manufacturers must be trusted by all users. Technical capabilities to handle very large transaction volumes need to be enhanced and the costs of maintaining the protocol need to be lowered.

Gateways to bringing on board ordinary companies and individuals into the M2M economy are also required. The liability model of business conducted on the blockchain will need to be reviewed as the appropriate treatment of liability may differ from current models. Last but not least, standard skills are required to easily and smoothly interface with legacy systems to overcome concerns and doubts of the conservative forces in business and government. Collective effort and engagement is required to make DLT and blockchain the new gold standard in business.

Independently from the time to realization, the final shape, form of the distributed ledger and blockchain technology, ports, harbours and terminals might significantly benefit just from exploring this central tool of the digital economy. Alone, the knowledge gathered and new relations built along the road – for example, with fintech and other tech companies – should justify the industries’ effort.


This article was originally published at Port Technology and republished at the World Economic Forum Agenda.

As shops go cashier-free, are retail jobs checking out?

For a long time it looked as if online shopping would gradually replace the high street. But the same digital development that was considered to be the end of physical shops may have brought a new beginning.

AmazonGoHow? Over the past two years a number of cashier-less stores have emerged in Europe and the United States, including the digital check-out test shop opened by Amazon in Seattle last year.

The innovative grocery store with no checkout line was called Amazon Go. But it wasn’t a new idea: some 15 years ago the German Metro Group, one of the world’s largest retailers, experimented with something called the Future Store, where radio frequencies and electromagnetic fields were applied to identify and track the tags attached to products. The concept was never commercialized.

Fast-forward to today, and Amazon Go uses sensor fusion, historic customer data and artificial intelligence; it connects to customer accounts via an app on their mobile phones.

Digital cashier-less stores promise certain advantages for business. For a start, the information they acquire and store can enrich existing data and help companies to analyse and plan. It also helps forecast consumer demand, predicting what buyers are going to buy before they know it themselves. The result is cost savings on shipping, inventory and delivery, and increased sales. It’s also good for consumers, in that it represent a significant shift towards seamless 24/7 retail and would open up new options for people in remote locations.

One thing that a digital store doesn’t do, however, is deliver products quickly. The solution here is in the scaling: delivery on the same day, or even within hours or minutes, becomes easier in a close network of stores and distribution centres. The denser the network, the shorter the distance to the customer, and the faster the goods arrive. This is where more stores and the use of drone delivery, reportedly just around the corner, could speed things up.

But this is only one side of the story. There’s another, darker question hanging over the whole enterprise, one perhaps reflected in the public’s mixed response in the chart below: the future of jobs in the retail sector, which after all is one of the largest employee groups.

No more shopkeepers?

In the digital store, the number of check-out staff is expected to decline dramatically. By contrast, jobs for business oversight and store security – as well as in technical positions – will persist. People will always be the best candidates for customer-service roles on the shop floor. It’s an important area of differentiation and it’s already happening. Following the centralization and automation of accounting and invoicing tasks, Walmart announced it was shifting 7,000 jobs to the sales floor. It seems clear that the responsibilities of employees are going to change.

Amazon, for example, has filed a patent for 3D printing within mobile manufacturing units. This concept of a moving factory or a moving manufacturing store would mean more flexibility, less stock and more tailored manufactured products for end consumers. In store, 3D printers can be used to produce made-to-order goods or offer 3D printing as a service. Customers pay with smartphones – no checkout line, of course. On the other side of the world, another tech revolution is taking place. In China, the commerce platform ULE is transforming stores into hundreds of thousands of hubs for e-commerce business.

In order to prepare for the future, both businesses and governments need to really understand the impact of automation on the supply and value chain. But information and opinions on this impact tend to vary. Bill Gates and Elon Musk, for instance, believe consequences will be severe. Roman Zitzelsberger, meanwhile, head of the German labour union IG Metall, considers robots less as a threat and more as an opportunity to move our professional lives towards higher-value tasks and more flexibility.

It seems that whatever happens, not only our professional lives but also our private lives – and many, if not all, businesses – will be affected significantly.

This blog was originally posted on the World Economic Forum Agenda.


How blockchain can restore trust in trade

containerInternational trade is under pressure. Fears fuelled by the global refugee situation and terrorist threats have led to tighter border controls – and these come at a cost. Every inspection of goods, every stop along the supply chain, eats up time and drives up prices. It harms businesses and consumers alike. Those involved in international trade – whether manufacturers, trading houses, transportation companies or banks – are seeking ways to ease the situation and cut time and costs.

Blockchain technology can help. The cloud-based ledger ensures that records can’t be duplicated, manipulated or faked, and increased visibility in parts of the supply chain promotes an unprecedented level of trust. It means governments can better protect citizens, while business partners can be certain trading documents are real. Consumers can check the quality and provenance of products, and banks can reduce processing time. And it’s all paperless.

Thanks to blockchain, all kind of legal, financial and product-related information can be made available. This allows even the least trusting parties to comfortably conduct business. With further investment and experimentation, blockchain could potentially hide confidential information to protect the interests of trading parties – pricing information, for example.

Does it work in the real world? Barclays reported the first blockchain-based trade-finance deal in September 2016. The transaction guaranteed the trade of almost $100,000 worth of cheese and butter between Irish agricultural food co-operative Ornua and the Seychelles Trading Company. The process – from issuing to approval of the letter of credit, which usually takes between seven and 10 days – could be reduced to less than four hours. Other banks are also exploring ways blockchain technology can improve processes along the supply chain. In August 2016, banking consortium R3CEV reported that 15 of its members had joined a trade finance trial to test its distributed ledger protocol, named Corda. Also in August, Bank of America, HSBC and the Infocomm Development Authority of Singapore (IDA) revealed that they had built a blockchain application to improve the letter of credit (LC) transaction process between banks, exporters and importers.

It’s not only banks: Maersk, the world’s largest container-shipping line, has been participating in a proof-of-concept initiative, using blockchain expertise from the IT University of Copenhagen to digitize the ships’ cargo inventories. These so-called “bills of lading” require an enormous amount of paper. A shipment of roses from Kenya to Rotterdam, for example, can result a pile of paper 25cm high. And the cost of handling it can be higher than the cost of transporting the containers. Maersk’s aim is to optimize the flow of information while raising visibility along the supply chain.

Often when making a purchase, buyers don’t know where the goods they ordered are coming from, or even whether they have been shipped at all. With blockchain, consumers can be informed of every step in the process. Combined with the internet of things, this could also extend to the care with which a product is transported. Swiss start-up Modum, for example, uses blockchain as a way of assuring recipients that pharmaceuticals have remained within an acceptable temperature range while in transit.

Trust and transparency

Citizens are worried that reduced barriers at the borders, as well as trade agreements, increase the risk of terrorism and illicit trade. Blockchain technology can in fact provide the backbone of a system of authorized trusted participants, bringing everything into the light, whether it’s a product, the party selling it or the path it takes to reach the buyer. Consumers and watchdogs, public and private, can trace every item moved through the authorized blockchain-backed channel and validate or reject both product and party. Customs clearance, too, can be optimized using blockchain. Parties that are part of the group can act quickly and efficiently, while others face scrutiny.

Immutable records on every aspect of a transaction – from the source of the raw material to where and how the products were manufactured, to their distribution, maintenance, repair, recall and recycling histories – are the new basis of trust. Information about ownership, provenance, authenticity and price are all held in the blockchain. Digital product memories connected to smart devices along the supply chain will provide secure proof of everything from manufacturing processes to quality controls. This will reduce the cost of compliance, i.e. the adherence with laws and regulations. Furthermore, this will open doors for replacing current product labelling practices to protect consumers and accelerate customs-clearance processes. Customers and consumer-protection organizations, as well as customs authorities, will have all the information they need to decide to buy or not to buy, to let goods through the border or to block them.

Blockchain has the potential to become the new gold standard of business and trade. But first, all nations need to accept the new technology. There are technical hurdles to overcome too. First, blockchain protocol(s) used to secure the ledger of global trade and manufacturers must be trusted by all of its users and be effectively un-hackable. Technical capabilities to handle very large transaction volumes will also need to be enhanced and the cost of maintaining the protocol may need to be lowered. Ordinary companies and individuals will need to be onboarded into the machine-to-machine (M2M) economy. The liability model of trade conducted on the blockchain will need to be reviewed as the appropriate treatment of liability may differ from current models.

Blockchain can help to reinforce trust in today’s complex and globalized world – giving citizens and governments fresh confidence in the global exchange of goods.

Image: Erwan Hesry

This blog was originally posted on the World Economic Forum Agenda.

Why China could lead the next phase of globalization

Donald Trump is the 45th president of the United States. Among his promises are a 45% import tax on Chinese products, the cancellation of the Paris climate agreement and, as was confirmed today, the end of the Trans-Pacific Partnership trade deal.

chinafutureIf he doesn’t go back on his plans for global trade and international affairs, Trump will give room to other nations to take the lead in shaping globalization. While the US might be taking a step back from the world – a world it helped to create, to a large extent – China in particular can be expected to take on a more prominent role.

While the US is currently the world’s largest economy, in purchasing-power terms China is expected to overtake it in 2016, according to the International Monetary Fund. China has benefited significantly from globalization. Over decades, it has invested in enhancing its capabilities and built economic links with many countries. It has become viewed as an important overseas partner and investor.

This chart shows how China is forecast to overtake the US as the world’s dominant economic power by 2030, based on share of global GDP, trade and exports.


Image: Economist

Something China understands very well is the importance of connectivity – and hence transport infrastructure – for economic growth and development. Its major development framework is the One Belt One Road initiative with its two pillars, the Silk Road Economic Belt and the 21st Century Maritime Silk Road. This development project involves a territory equal to 55% of global GDP, 70% of the global population and 75% of its known energy reserves. “The investments will involve about 300 projects extending from Singapore to Turkmenistan,” reports Reuters.

One building block of One Belt One Road – also known as OBOR – is the Regional Comprehensive Economic Partnership (RCEP). This China-driven alliance will comprise Australia, New Zealand, China, India, Japan and South Korea – as well as the ASEAN region. In 2014, ASEAN was the seventh-largest economic power in the world. It was also the third-largest economy in Asia, with a combined GDP of US$2.6 trillion – higher than all of India.

China on the world stage

On the African continent, China is lending billions towards large-scale infrastructure investments, again part of OBOR, and particularly in transportation. One of its flagship projects is the Standard Gauge Railway in Kenya. There’s also the development of deepwater ports in cities such as Dakar, Dar es Salaam and Djibouti. These are likely to become industrial hubs, following the model of China’s development of the new Cameroonian deepwater port of Kribi.

The Russian Trans-Siberian Railway (TSR) is at the origin of rail transportation between Europe and Asia. Recently, Anthony Cuthbertson wrote in Newsweek that Vladimir Putin may be envisaging a Hyperloop Silk Road. This could present an alternative to the planned construction of 64,000 kilometres of rail tracks that are intended to strengthen existing pathways between the east and west. CRRC Corp, China’s largest maker of railway equipment, was in talks for a potential investment in Hyperloop One, the company behind the idea, Bloomberg reported earlier this year.

Meanwhile, China is launching an $11 billion fund for Central and Eastern Europe, targeting investments in infrastructure and high-tech manufacturing, among other things, both in the region and beyond. Supply-chain operator DB Schenker started running weekly block trains between China and Germany as long ago as 2011. Four years later, the first train carrying containers from China arrived in the Rail Service Centre freight terminal in the Port of Rotterdam.

With the New Development Bank (NDB), the Silk Road Fund and the Asia Infrastructure Investment Bank (AIIB), China has prepared itself for responses to major financing needs – within and beyond the Belt and Road area. This shows some similarity with the Marshall Plan, the US support plan that helped to rebuild western Europe after the end of the Second World War.

With the US pulling out of the TPP, as Trump has indicated it will, China holds an advantage. The binding agreement, which connects Asian countries to North and Latin American nations, has been perceived by many as an obstacle to China’s reach and a way to solidify US alliances with other nations in the Pacific region. Other Asian countries with high export potential, such as Malaysia and Vietnam, are expected to benefit significantly from TPP, while countries that did not sign the agreement, such as the Philippines, risk losing out. This could have a disruptive effect on the region due to trade and investment diversion.

So far, China has faced scepticism and criticism for its international activities. Many have questioned its development in Africa, for example. But China could yet regain a level of moral authority; it could lead the global climate adaption effort if the US pulls away, for instance. It has already warned Trump against backing away from the Paris climate deal.

What’s in store for relations between the US and China? For a start, there may be tough negotiations over the US import tax on Chinese goods. If both nations find the right balance, they will not only avoid a global trade war, as in the 1930s when the implementation of the Smoot-Hawley tariff act intensified nationalism around the world, but they could also move their bilateral relations to new grounds.

Whatever happens, if the US pulls away from globalization, China stands ready to fill the gap.

This blog was originally posted on the World Economic Forum Agenda.

Why border controls won’t protect Europe against terrorism

In mid-December, people and families all over Europe and in many parts of the world were gearing up to celebrate Christmas, one of the most important events in the Christian calendar. But on 19 December 2016 at 20:02 local time, a hijacked truck veered into a traditional Christmas market next to the Kaiser Wilhelm Memorial Church in Berlin. Twelve people were killed. Four days later, the suspected perpetrator was shot and killed by police on an Italian plaza in Sesto San Giovanni, a suburb north of central Milan.

bordercontrolsOn the same day, ISIS extremists released a video of the perpetrator, filmed recently in Berlin. His name was Anis Amri. Having pledged allegiance to the group, he suggested that the Berlin attack was vengeance for coalition airstrikes in Syria.

Amri was from Tunisia and had arrived illegally in Italy in 2011. The New York Times reported that after he had showed signs of radicalism, Amri was classified as a terrorism risk in 2014 – one of a group of a few hundred individuals only – before making his way to Germany in 2015. In Germany he had been under covert surveillance for more than six months. Italy and Germany had failed to deport him due to a lack of cooperation by his home country.

After the Berlin attack, Amri had travelled for three days and 1,000 miles across Europe. A train ticket found on his body showed he had come from Chambery in France via Turin. European right-wing politicians, including Marine Le Pen, the leader of French far-right National Front, and Nigel Farage, the former leader of the UK Independence Party, responded by demanding an end to the Schengen agreement, a historic deal signed by five European countries in 1985, which had led to the creation of Europe’s borderless Schengen Area.


Are borders ever the answer?

Few national borders are absolutely impermeable, and controls may fail due to fake and stolen documents. The Chicago Tribune reported that in 2015 around 170,000 people escaped detection at the US border with Mexico and 200,000 eluded capture when adding those who entered by sea. This is barely half of people who entered the US illegally. The wall that made Berlin one of the most difficult places to cross the border could not stop illegal crossings. The wall only reduced the number of escapees to 868 per annum during the 1970s and to 334 per annum between 1980 and 1988.

Aviation security measures are considered most tight in the world of travel and transport – but two passengers were able to board Malaysia Airlines Flight 370 on stolen passports. The Berlin suspect had used at least six different aliases under three different nationalities, reported the Daily Mail.

The threat often lies within: “Not one Paris attacker has been identified as a Syrian refugee”, Mashable wrote. All people named in connection with the Paris attack of 13 November 2015 were French or Belgian citizens who held European passports. The BBC reported that on 23 December 2016, Australian police detained six men and a woman – four Australia-born. Three are suspected to have planned a Melbourne Christmas Day terror attack which Australian Prime Minister Malcom Turnbull called one of the most substantial pots to have been disrupted in recent years.

According to Eurostat, it is estimated that the European Union’s citizens aged 15 or over made 1.2 billion tourism trips in 2014, for personal or business purposes – 25.1% were to destinations outside the country. Labour markets would also be affected: 1.7 million people cross European borders every day to get to work. Waiting and inspection times at the borders would need to be factored into the prices of goods, as well as the required changes to the highly cost-optimized just-in-time concepts – largely applied in the automotive industry – and the efficient goods supply out of European distribution centres. Consumer prices would rise due to the forced slowdown, necessary adjustments and increased logistics costs. Many products would disappear from supermarkets – at least temporarily. The Bertelsmann Foundation warns that reestablishing permanent border controls in Europe could produce losses of up to 1.4 trillion euros over 10 years.

A united Europe

The current terrorist threat requires collaboration across all European countries, the use of advanced technology and a common European anti-terrorism strategy. Instead of investing time, money and energy in individual and isolated efforts to protect each country, Europe could be made much safer through consolidating budgets and other resources to better protect the outer borders of the EU and leverage advanced digital technology. The most effective way would be for all European countries to unite under one strategy – for example in a “homeland security alliance”. There is little chance that European countries with long and highly permeable coastal borders can manage the protection challenge alone. The effort cannot be shared but needs to be concentrated where needed.

The potential measures range from increasing EU security forces at the southern European borders to identifying and registering new arrivals; introducing waterproof authentication checks for example at train and bus ticket booths. The digital age brings solutions that allow smooth travel and fluid transport while also ensuring the highest level of security.

The exchange of security-relevant information should be mandatory. Country authorities need to be able to authenticate every individual and check for security risks. Facial-recognition software on surveillance cameras, which is available yet still rudimentary in many places, needs to be improved.

Blockchain technology – which can ensure the authenticity of goods – will possibly help in future to track the origin of freight. The transport of weapons and explosives would become significantly difficult. Manufacturers have already started to use blockchain technology to confirm the authenticity of luxury goods. The AMBER alert, a child-abduction alarm system that distributes alerts via TV and radio as well as emails and text messages, could be transformed into an effective measure to put the entire European population at the disposal of its own security system.

Even the most secured borders have proven to be permeable. And borders cannot stop local-born and locally operating terrorists. Political leaders need to explain why digital and coordinated European measures are better suited to protect the lives of European citizens and visitors than the reinstallation of intra-European borders.

The situation demands an act of solidarity across all governments in Europe. In its own interests, the private sector is required to support this effort. Leaders could leverage the current threat as a historic chance to unite Europe under an urgently needed common security vision and execution plan.

Image: REUTERS/Vincent Kessler

This blog was originally posted on the World Economic Forum Agenda.