Navigating seven seas of AI-driven transformation in trade

Wolfgang Lehmacher and Mikael Lind write for Splash today sharing some of their input to the recently released World Economic Forum AI TradeTech report.

Artificial intelligence (AI) is poised to change international trade. AI will improve efficiency, costs, and decision-making. McKinsey reports that AI implementation can reduce forecast errors by 50% and logistics costs by 15%, while companies leveraging AI have seen inventory levels decrease by 35% and service levels improve by 65%. This article highlights seven areas where AI may transform trade, the benefits ahead, and the barriers to overcome.

1. Intelligence and negotiations
   AI systems can identify market trends, predict demand, and better automate negotiations in e-commerce and B2B sales. This technology could also level the playing field for smaller businesses. However, concerns over data privacy and ethical implications may slow adoption, particularly in developed nations.
2. Optimising trade through automation
   AI can help supply chain management by making real-time adjustments based on demand changes, improving customer satisfaction, lowering costs, and freeing working capital. Challenges include ensuring reliable predictions in uncertain conditions and managing data synchronisation across multiple trade nodes.
3. Enhancing risk management and resilience
   AI tools can monitor risk factors, from supplier operations to natural disasters, allowing businesses to adjust operations swiftly. AI assists in supply chain mapping, simulation, and developing contingency plans. The effectiveness of these systems depends on data quality and overcoming resistance to data sharing among business partners.
4. Facilitating trade through language and cultural barriers
   Advanced machine translation systems powered by neural networks are breaking down language barriers in international trade. AI also assists in localising digital presence for different markets. Challenges include changing international trade regulations and AI’s limitations in processing context-specific language nuances.
5. New possibilities in trade finance
   AI can assist in credit assessment, risk evaluation, and fraud detection in trade finance. Integration with smart contracts and distributed ledger technology could revolutionise supply chain finance, potentially reducing processing times for instruments like letters of credit from weeks to hours. Technical and regulatory challenges, as well as ethical concerns, remain.
6. Streamlining compliance and customs
   AI can automate customs processes, detect anomalies, prevent fraud, and help companies manage complex trade risks. Challenges include lack of interoperability between computer systems and concerns about the accuracy of AI-driven customs decisions.
7. Ensuring ethical sourcing and sustainability
   AI systems can track materials throughout value chains, assess suppliers, and help companies avoid unethical partnerships. AI can also assist in improving Scope 3 emissions calculations and recommend more sustainable alternatives. Effectiveness depends on data sharing and collaboration across global value chains.

The impact of AI varies across developed and developing markets, public and private sectors, and businesses of different sizes. As we navigate this AI revolution, a human-centric approach that fosters collaboration between human experts and AI systems will be crucial. Trust is essential in trade, and users are more likely to embrace AI-powered solutions when complemented by human oversight and expertise.

Challenges such as data privacy, cybersecurity, regulatory complexity, and ethical concerns must and will be addressed to fully realise AI’s potential in trade. Businesses, governments, and other stakeholders in the global trade ecosystem are well advised to prepare for the AI revolution, as those who embrace this technology early and thoughtfully stand to gain a significant competitive advantage in the rapidly evolving, currently volatile, and uncertain world of international commerce and trade.