Case Study: Commodity Trading 1.0 vs 2.0
Electronic Transferable Records (ETRs): Letters Of Credit & Transport Documents (eBL).
The Legacy Scenario 1.0
Terra Commodities International (TCI) is a fictional, Swiss domiciled multinational agricultural soft commodity trader that sources, buys, stores and distributes agricultural commodities such as grains, wheat, oil seeds and animal feed. The businesses priorities are risk management, cost-control, hedging and delivering on time.
Pinoy Import Trade requires a letter of credit to import a cargo of wheat from The United States Of America into The Philippines in order to both meet regulations and finance the transaction. It has always been a time-consuming, paper-based manual process:
First, TCI’s bank in Geneva: Celestial Commerce Bank (CCB) receives an Original Bill of Lading (OBL) via courier from the carrier, Neptune Cargo Lines.
Second, the letter of credit must be included in the same document package as the commercial invoice, packing list, certificate of origin, and certificate of analysis.
Phase 3: CCB Geneva’s clerical staff check the paperwork for accuracy and conformity with the terms of the letter of credit. The buyer’s bank Manila International Bank (MIB) receives the paperwork via courier after it passes inspection.
Phase 4: The documents are reviewed by (MIB) and if everything is in order, they are forwarded to the importer;
In Phase 5: the importer surrenders the OBL by physically providing it to the carrier when the cargo is ready for pick-up (the carrier will not release the cargo without the OBL).
In Phase 6: if one or both of the banks finds an error, the paperwork is sent back to TCI for corrections before it is resubmitted.
This can take 17- 28 days to complete this paper document movement and handling.
When the cargo finally arrived at the port, the importer was unable to hand over the OBL to the carrier as the necessary documents had not yet been processed. Costs like detention and demurrage, problems with inventory management, and sales declines would all result from this.
Scenario 2.0
. . . with Electronic Transferable Records (ETRs):
Neptune Cargo Lines, Terra Commodities International’s (TCI) preferred carrier, recognised the problem last time around and proposed using Post-Trade, by Havona to digitise the documents and workflows involved.
Neptune Cargo Lines (the nominated shipping line) issued the Original Bill of Lading OBL for TCI's shipment digitally as an electronic bill of lading (eBL) via the DCSA’s Transport Document data model for electronic bills of lading. TCI securely receives the eBL via the Havona platform which facilitates a compliant transfer of the electronic transferable records between TCI and Neptune Cargo Lines, for example:
The packing list has been dynamically created during the contract flow between TCI and their grain supplier in The United States. Finally, once the agreements between TCI and its Phillipines counterpart have been digitally signed and recorded on the blockchain, the packing list is electronically transferred by TCI to Neptune Cargo Lines - Who in turn issue the eBL along with the DCSA compliant transport documents.
The trade finance process was digitalised with the help of Celestial Commerce Bank (CCB) and Manila International Bank, including the uploading and secure transfer of electronic transferable records such as the letter of credit.
First: Neptune Cargo Lines issues an eBL.
Secondly, the commercial invoice, packing list, electronic certificate of origin (eCO) already reside on the Havona platform as they were formed during the collaboration between TCI and it’s trading Counterpart - The certificate of analysis is also uploaded, stored and cryptographically sealed on the Havona Post-Trade Network for safekeeping and version control.
Phase 3: The eBL and trade documents are shared with TCI (the seller) and CCB (seller’s bank, Geneva) for review, with both parties having secure, authorised access to the electronic records and files;
Phase 4: Once everything has been double-checked, CCB and Manila International Bank (buyer’s bank) will compare the eBL and the trade documents;
They will securely communicate with each other and with their respective clients via the Havona platform, which has recorded any changes to date on the blockchain - When both banks are satisfied with the data and have not raised any issues with the data, they submit their cryptographic signatures to allow the trade to move into the next phase.
Phase 5: The electronic transferable records such as the eBL and the other trade documents are transferred to authorised members of the network following a second review on the secure Havona platform;
Phase 6: TCI (the seller) securely transfers title by submitting the eBL to the shipping company, who in turn releases the goods and transfers title to the obligor, principle parties (the buyer and their bank in the Philippines) once the performance of the trade contract has been sufficiently exercised through the Digitial Trade Transaction (DTT) rules engine.
Access to the electronic records and documents is transferred in a matter of seconds during each stage of this process while remaining secure and under control of the appropriate authorities.
Cost Control:
Detention and demurrage fees are no longer a concern.
There was less potential for stock-outs or revenue delays due to late paperwork.
Delivering on time:
A time saving of 12 - 15 days was realised due to the streamlined documentation process.
TCI was able to drastically reduce the time it took to send, verify, and process documents from beginning to end of the supply chain, which ultimately helped to ensure on-time cargo release.
The company was also able to execute document revisions in a secure manner with a clear audit trail in minutes rather than days.
Reduced the time it took Terra Commodities International to ship product to a customer by eliminating paperwork delays.
Risk Management:
The process of closing the deal was quick, painless, and entirely digitally documented.
The client saved time and effort on administrative tasks by going paperless with their banking and shipping document flows and synchronized on the Havona Trade Network.
