Rio Tinto and Cargill, supported by HSBC Singapore and BNP Paribas, have successfully completed the first fully integrated paperless trade transaction in iron ore.
The transaction involved Rio Tinto selling a bulk shipment of iron ore originating from Australia to China for a Cargill customer. Building upon the first fully-digitised trade finance transaction completed in November 2018, Rio Tinto and Cargill have gone two steps further by extending this across the full value-chain from acceptance of key commercial terms through to delivery.
The fully integrated paperless trade transaction was achieved by integrating with Chinsay’s Intelligent Contract Platform (ICP) and essDOCS’ Document Exchange platform (CargoDocs DocEx).
By using ICP, Rio Tinto and Cargill were able to dramatically reduce the time it takes to create, issue, approve and digitally sign commodity contracts from several days to under two hours by collaborating on a single platform.
CEO of Chinsay, Colin Hayward explained why the innovation of paperless trade was so important.
“A single trade within the iron ore industry, or any other commodity supply chain, requires the creation and passage of information between many stakeholders both internally and externally. This information must be reviewed, approved and agreed by functional experts (commercial, credit, risk, operations, finance, etc) and accepted by trading counterparts.
“Currently, even though much of the documentation is in digital form, the data contained within those documents is not usable beyond a simple reference source and has to be rekeyed into other operational systems and processes. This takes time, is prone to error and is expensive to scale.
“Through digitalisation, Chinsay is making that data available so it can be consumed by other processes and systems without rekeying, i.e., integrated. Some of the immediate benefits is to reduce errors and the time complete trading processes. The same data can also be used to provide greater transparency into an organisation’s operations allowing continual refinement and improvement of processes,” he said.
Nicholas Demetriou, CMO of essDOCS agreed, adding that “a fully integrated transaction allows for a secure, simple, speedy and efficient way to connect previously ‘siloed’ data, meaning that users can access core data and take key user actions via a single ‘window’ as opposed to needing to access data (or re-enter data) plus take actions from non-integrated systems to carry out a transaction.”
Patience needed as momentum builds
Demetriou said that while paperless trade is commonplace in certain parts of a trade chain, the entirely digitized chain on this occasion represented a “milestone” in paperless trade, moving a step closer to widespread use.
“The dots are being further connected to allow for fully integrated paperless transactions, from contract negotiation up to financing and execution, paving the way for more to come,” he said.
Although Hayward suggested that it will take a while before fully integrated paperless transactions became the norm.
“The challenge is focusing on the right process. In digitalising the contracting process, which sits at the beginning of the trade lifecycle, we are making sure the data is richly typed and strongly structured. Having done this, building a network of companies and users who collaborate on the platform is key.
“This takes time and patience. So, it’ll take time to become commonplace, but we are seeing increasing interest and momentum is starting to build,” he added.
Everybody wins?
The seamless flow key contract attributes to Voltron made the issuance of the Import Letter of Credit (LC) an efficient process for Cargill as the applicant and BNP Paribas as the issuing bank.
In addition, by using CargoDocs DocEx/DocHub, all relevant trade participants from Rio Tinto to shipping agents to banks were able to collaborate on a single web-base platform. Once on the platform, the participants could draft, approve, sign, issue, transfer and electronically present the eB/L to slash the trade document turnaround from weeks to less than two hours.
Demetriou said that all participants in the supply chain had the potential to benefit from paperless transactions.
“All supply chain participants benefit from the increased speed and efficiencies arising from going paperless as a result of swifter execution time for trades; having said this, those driving change today are primarily exporters & traders looking to gain operational efficiencies, reduce costs and optimize working capital, as well as banks, looking to provide their corporate customers with enhanced (digital) trade finance capabilities.”
Excited reaction
And it certainly appeared that the participants in the transaction were pleased with the outcome.
Zoran Lzevski, Head of Global Trade Solution, Asia Pacific, BNP Paribas said: “This fully integrated digital transaction further helps ensure trade flows are faster, more secure, simpler and more efficient and transparent. Following last year’s successful pilot, we broadened the scope to include contract management, making this a complete end-to-end import Letter of Credit proposition for our client, Cargill. We continue to work closely with our clients to make trade even easier for them.”
While Cargill’s Metals business MD, Lee Kirk called it a “significant, industry-defining solution”.
“From acceptance of key commercial terms through to delivery, the speed achieved from a fully digitalized trade enables us to better meet the needs of our customers across the globe,” he added.
HSBC Singapore’s Head of Global Trade and Receivables Finance, Iain Morrison, spoke about what this meant for Singapore’s prospects as a tech hub within finance.
“Singapore continues to play its role in nurturing the technology which is enabling the evolution of trade finance. Building on the knowledge, relationships and expertise of the participants involved in this transaction, we are closing the gaps in making this a truly transformative product,” he said.
Simon Farry, Vice President, Sales & Marketing for Rio Tinto’s Iron Ore business said: “We are focused on utilising technology to improve the customer experience when they do business with Rio Tinto, such as reducing documentation turnaround times and simplifying processes. The successful conclusion of this pioneering project brings us one step closer to a future of fully digital cross-border trade.”