The process of shipping one container of soybeans from Brazil to the People’s Republic of China will generate, by some estimates, around 25,000 emails. That’s a lot of real-time communication, but it’s just the start.
Every cross-border transaction also generates innumerable phone calls, not to mention reams of physical paper that must be exchanged between the participants to each deal, and all of which are a potential problem.
All it takes is just one misplaced document, one deleted email, one key operative on extended sick leave, and parties are looking at delays of days or even weeks, with major cost implications.
“Physical documents can get held up anywhere,” says Vishal Vijay, Head of Business Development at Agrocorp International. And the problem is made immeasurably worse when something like Covid-19 disrupts the movement of people. “If your documents are delayed when the goods arrive at the discharge port they just sit there, and then the logistics provider or the freight company charges you quite a substantial amount of storage costs.”
For a company like Agrocorp, one of Asia’s largest shippers of agricultural commodities, delays like this can add millions of dollars to annual costs.
But what if tech could make the whole process dramatically simpler, and cheaper?
Blockchain? Is that still a thing?
For most people the entire blockchain frenzy simply fizzled out in 2019. But while the collapse of cryptocurrencies did drive away almost all retail consumer interest, big business continued exploring blockchain technology’s potential, and putting it to practical use.
For AgroCorp some 20% of its 4 billion dollar annual turnover now involves blockchain, and that’s led to significant savings in time and manpower costs, not to mention a significant reduction in financing costs.
“If you’re able to digitise the trade finance process,” says Vishal, “then you don’t need physical documents, you don’t need to rely on courier services to move physical documents around the world.”
With blockchain these documents and every other element of the transaction are recorded in secure, un-editable digital form, which means that all parties to the trade can view and trace all relevant data and be certain of its authenticity.
For banks and borrowers, that means considerable de-risking of the uncertainty that paperwork and human error bring.
Perhaps the most significant stamp of approval for blockchain technology in recent years has come from the financial sector. Big banks have led the way in exploring and implementing the technology, and now routinely conduct business based on blockchain solutions.
For Singapore’s DBS Bank, which is partnering with Agrocorp in this arrangement, blockchain’s digital advantages make all the difference.
“Blockchain solutions provide accuracy and verifiability of data,” says DBS’s Group Head of Trade Product Management Sriram Muthukrishnan, “thus enabling businesses to transact and obtain financing more efficiently for both domestic and cross border trades.”
Accurate information doesn’t just mean lower risk, it also provides better access to working capital, especially for SMEs that might ordinarily struggle to raise affordable trade finance.
Says Sriram, a verifiable audit trail showing a clean business history and the traceability of the supply chain help ascertain the genuineness of an underlying trade, which provides an added layer of assurance for banks.
“When real-time data is available, which clearly evidences their role and quality of performance as part of the supply chain, we can start making credit decisions quickly and closer to real time on both the anchor and their suppliers. This enables us to provide them financing at appropriate stages of the procure-to-pay life cycle, including at the pre-shipment stage,” Sriram says.
Sustainability as a financial metric
For AgroCorp, the blockchain solution has also helped deliver on the company’s commitment to sustainability goals by providing traceability and end-to-end linkages across the entire supply chain, from farmers, small holders to the end consumers. They are also able to adjust to a consumer market that is increasingly demanding sustainable products.
Thanks to DBS’s recognition of blockchain’s transparency and verifiability, companies like AgroCorp have added motivation to go sustainable, as it would allow them to apply for more favourable loan rates through pools of financing reserved for sustainable businesses, as offered by DBS.
“The modern consumer wants to know what they’re buying, what they’re consuming,” says Vishal. Using blockchain means that the company can guarantee the provenance of all their sustainably farmed produce. “We deal with all the largest food manufacturers in this part of the world, and they need to have this information in order to share with their customers.”
What’s under the hood?
Of course, all these blockchain benefits – guaranteed traceability, secure documentation, process efficiency – depend upon a robust technology engine, and its efficient implementation. For this Agrocorp partnered with Singapore blockchain specialists Distributed Ledger Technologies Pte. Ltd. (dltledgers).
In the two years since going live, dltledgers says it has processed 3 billion dollars worth of live trade financial transactions across its customer base.
“I’m convinced that 80% of global trade will be done on the blockchain within five to 10 years” says Chief Marketing Officer James Green. “It just works. It’s way better than what existed previously.”
There are still enormous barriers to be overcome before that happens. Green suspects that management inertia among individual companies explains the slow uptake, as well as the small number of counterparties currently active in the blockchain eco-system. But he says that the pace of change is speeding up.
“Despite COVID we’re predicting to grow over 500% this year. It would have been 1,000% otherwise.”