Using blockchain to spur regional trade: insights from HSBC Malaysia

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Photo by Clint Adair on Unsplash

HSBC announced in October 2019 its successful execution of the first live pilot blockchain Letter-of-Credit (LC) transaction in Malaysia.

The transaction involved the import of resin by Malaysia’s Simply Packaging Sdn Bhd (Simply Packaging) from a Singaporean company, both active players in the packaging and chemicals industry respectively. HSBC Malaysia was the issuing bank and HSBC Singapore was the advising/nominated bank.

According to HSBC, this is a significant step for Malaysian companies – both larger corporates as well as smaller firms –  in the digitization of trade. This is because it promises to make doing business simpler and faster by reducing transaction times and bringing in working capital efficiency. The use of trade finance solutions like blockchain also helps to increase the velocity of trade, especially in situations like these where shipping routes are short, like the cross-border trade between Malaysia and Singapore.

Removing the hurdles of close-proximity trade

Figures from the Singapore Department of Statistics state that cross-border trade between Malaysia and Singapore was worth over US$85 billion in 2018. While the physical transfer of goods between neighboring countries takes a relatively short time – usually under 48 hours – the administrative paperwork often delays their delivery. The process of exchange and checking of documents typically takes 5-10 days. In contrast, the Simply Packaging blockchain exchange was completed in 24 hours.

By integrating blockchain technology, the transaction has entirely digitized the administrative process through the e-presentation of key trade documents. The following were enabled:

  • Integration of Bolero’s electronic bill of lading (eBL) platform to issue and manage an eBL
  • Transfer of title completion while goods in transit
  • Elimination of Paper reconciliation
  • Instantaneous updates
  • End-to-end visibility for all parties
  • Just-in-time inventory management
  • Removal of demurrage charges
  • Shortened turnaround times

According to Stuart Milne, Chief Executive Officer, HSBC Malaysia,the quicker turnaround times do not just save companies money, but help boost the efficiency of intra-ASEAN trade which is characterized by many close-proximity shipping routes. This in turn “helps trade to grow and flourish throughout the region.”

Blockchain solutions apply to companies of all sizes

This transaction demonstrates how blockchain solutions can be easily applied to all companies, regardless of size. Simply Packaging, a Malaysian SME that has grown into a mid-tier company, uses digital expertise and technical experience to streamline and increase its business efficiency.

Globally, this is the eleventh blockchain transaction led by HSBC, and the first pilot blockchain transaction for HSBC Malaysia. HSBC has been pioneering the use of blockchain in trade finance since executing a Cargill LC transaction last year. This latest transaction is a reflection on how the technology is gaining traction in markets across the region.

Milne reiterated HSBC’s commitment to commercializing blockchain solutions for trade finance. This will support the bank’s Malaysian customers, particularly SMEs who make up 98.5% of business establishments in Malaysia and contributed 38.3 per cent to the nation’s GDP in 2018.

Shahid Chachia, Joint Managing Director of Simply Packaging said, “As a leading manufacturer of plastic films and packaging in Malaysia, we are always on the lookout for the latest innovative initiatives to keep up with changes in the digital and economic spheres. We are therefore proud to be part of the first trade transaction in Malaysia using the revolutionary blockchain technology – especially when we are the first in Malaysia to do so with HSBC.”

“I believe this will be the mode of issuing LC moving forward as businesses and the governments recognize the safety and swiftness in performing tasks using the blockchain technology,” added Shahid.