The soy deal, the first of its kind in agri-commodity trading, involved user participation on a blockchain-based platform - Easy Trading Connect (ETC) - by teams from LDC as the seller and Bohi as the buyer, with banks issuing and confirming the letter of credit. Russell Marine Group and Blue Water Shipping issued all required certificates, while they said the US Department of Agriculture (USDA) provided insights on how to include phyto-sanitary certificates in the process.
Due to the blockchain prototype used, the time spent on processing documents and data was reduced fivefold, said the participants.
The transaction relied on the use of a digitalized sales contract, letter of credit and certificates and automatic data matching. The deal mirrored the paper-based process but demonstrated significant efficiency improvements for all the parties in the chain, according to those involved.
"This new, adapted ETC platform accommodates the agricultural sector’s complex and rigorous documentation chain flows, covering not only the financing aspects, but also the full set of relevant documents pertaining to a transaction, such as the signing and processing of the sales contract at the start."
Asked how long this particular blockchain platform project took from idea to realization, Robert Serpollet, global head of trade operations, LDC, told FeedNavigator:
“The ETC platform was designed to digitalize and standardize different types of commodity transactions, and was first tested with an oil cargo shipment in February 2017. Later in the year, following that successful initial deployment, the banks involved - ING and Societe Generale - together with ABN Amro, teamed up with Louis Dreyfus Company to develop a blockchain-based platform tailored to the complexities of agricultural commodities trading, where more documentation and various actors are typically involved.
“The recent test involving a soybean shipment from the US to China took place in November-December 2017. So, everything happened pretty fast, as is often the case with disruptive new technologies.”
Efficiency and security gains
He said the test has proven that the technology has the potential to enhance efficiency and security in the processes related to the merchandizing and transportation of commodities around the globe.
“Each participant of the ecosystem can benefit, and this is key to bringing market players together as we continue our work towards developing and sharing common standards and rules.”
In coverage late last year on blockchain led innovation, a Rabobank analyst told us the technology could benefit agribusiness by bringing down trade transaction costs, increasing transparency in supply chains, giving smaller companies competitive strength and also bringing new business opportunities in terms of data services.
The efficiency gains from conducting soy trading in this fashion were impressive, said Serpollet.
“The time spent processing documents and data has been reduced from hours to minutes. We were able to monitor the operation’s progress in real time, and estimated that the transaction was completed in a secure way seven business days before the original documents were received by the negotiating bank.”
To calculate the time savings, he said the entire process was broken down into key steps, excluding the risk assessment activities associated with compliance and credit risk and other aspects.
“The focus was on the non-value adding work and the elimination of duplicate tasks, for example, cutting time spent on email exchanges, re-keying, sending and signing documents, identifying discrepancies, etc. The platform’s auto match feature meant that the conditions of the smart contract were automatically fulfilled. In the end, the paper-based process was compared with the digitalized blockchain process in its entirety, to finalize the assessment.
“In a nutshell, in terms of efficiency and speed, the opportunities are immense.”
ING, Societe Generale, ABN Amro and LDC said they all have a long-term ambition to improve security and operational efficiency in the commodity trading and finance sector through digitalization and standardization.
Other benefits include reduced risk of fraud, and a shorter cash cycle. The companies said the platform’s success also demonstrated the immense potential of distributed ledger technologies to advance commodity trading and financing.
Hurdles to overcome
When asked what are the existing obstacles to preventing blockchain transactions, such as this one, becoming commonplace in agri trading, Serpollet told us:
“Points for attention include the interoperability of blockchain platforms, and the challenges associated with their integration with the core IT systems of the various participants. There are also legal aspects that need to be better defined, such as the expansion of electronic signature and smart contract enforceability, but we are confident that these will be addressed in due course.
“Working in partnership is an essential prerequisite if this groundbreaking solution is to move forward and realize its full potential. From an LDC perspective, we now need to define the best way to adopt this technology in the agribusiness context, collaborating closely with the banks and other major agricultural commodities merchants.”