IBM, Natixis and Trafigura have pioneered the first blockchain solution in commodity trade finance for US crude oil transactions, IBM announced Tuesday.
The distributed ledger platform, built on the Linux Foundation open source Hyperledger Fabric, allows major steps in a crude oil transaction to be digitized on the blockchain, ensuring improved transparency, enhanced security, and optimized efficiency, according to IBM.
By having the buyer, seller and their respective banks all on the same ledger, all parties can simultaneously view and share data on the status of a transaction, from the time a new trade is confirmed and validated, to when the crude oil is inspected, to its final delivery and cancellation of the letter of credit.
Key benefits of the solution include reduced cash cycle times, improved efficiency via lower overhead costs and fewer cost intermediaries, increased transaction visibility to help reduce the threat of tampering, fraud and cyber-crime, and the creation of transparent transactions by using shared processes and recordkeeping.
This initiative is part of a broader effort to modernize trading in the global crude oil industry, which today is predominantly driven by manual, non-digital processes.
“Processes in the energy and commodities trade business are ripe for improvement,” said James Wallis, Vice President, blockchain markets and engagements, IBM. “The approach we are taking, using a permissioned blockchain network built on the Hyperledger Fabric, has the potential to transform the crude oil industry by creating consistency in trade finance and by digitizing transactions and information sharing. Creating this ecosystem for the commodities market working with two world leaders in this industry will help create an entirely new approach to managing the global commodities trade.”
The new trading platform allows trade documents, shipment updates, delivery and payment status to be shared across a single shared ledger, helping to reduce transaction time, duplication of documents and authentication processes among all trading partners. Traditionally these transactions require complex workflows and paper-based processes in which documentation is shared through courier, fax and email exchange. The solution, which is hosted on IBM’s cloud platform, Bluemix, was led and delivered by IBM France.