IBM Partners with Natixis and Trafigura, Introduce First Blockchain Solution for U.S. Crude Oil Market
by Nuno Menezes
IBM announced a partnership with Natixis and Trafigura to introduce the first blockchain development for commodity trade finance for US crude oil transactions. The March 28 announcement marks the beginning of the institutional use of the blockchain technology. The trading industry is today mostly driven by manual, non-digital processes, so this initiative comes as part of a plan to start modernizing trading in the global crude oil industry.
This new development is said to be built using a distributed ledger platform, the Linux-based Hyperledger Fabric. The application allows major steps in a crude oil transaction to be digitized on the blockchain to ensure optimized efficiency, improved transparency and offering a new-high grade level of security.
James Wallis, the blockchain markets and engagements sector Vice President at IBM stressed:
"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 major benefits coming from this new solution include increased transaction visibility to help reduce the threat of tampering, reduced cash cycle times, fraud and cyber-crime, improved efficiency via lower overhead costs and fewer cost intermediaries, and the creation of transparent transactions enabled by the blockchain.
The platform gathers both buyer and seller along with 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.
Arnaud Stevens, the Head of Global Energy & Commodities at Natixis in New York, stated:
"Natixis wants to use blockchain to enhance client service by optimizing the antiquated arena of commodity trade finance. The current process is paper and labor intensive; we have multiple friction points with high processing costs and limited automation. Distributed ledger technology brings some much-needed innovation into our industry."
With more than 16,000 employees, Natixis is the international corporate, investment, insurance, and financial services arm of Groupe BPCE, the second-largest banking group in France with 31.2 million clients spread over two retail banking networks. The company follows three main business lines; Corporate & Investment Banking, Investment Solutions & Insurance, and Specialized Financial Services.
The platform also allows trade documents, shipment updates, delivery and payment status to be registered across a single shared ledger, helping to reduce transaction time, and the duplication of documents and authentication processes among all trading partners. By default, 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.
Rodney Malcolm, Trafigura Trading's North American Chief Financial Officer, stated:
"Together with Natixis and IBM, we have analyzed the workflow of crude oil transactions in the US, detailing the different steps of a transaction, our interactions with the financial institutions and the documents exchanged among the various parties. The goal is to replace paper-heavy manual processes with blockchain-based workflows to improve transparency and data sharing."
Founded in 1993, Trafigura is one of the largest physical commodities trading groups in the world. Trafigura sources, stores, transports and delivers a range of raw materials, including oil and refined products and metals and minerals to clients around the world. For the company, it made all sense to bet in the modernization of the trading infrastructure.
The new platform will soon be expanded to allow all parties in the transaction to enter data directly onto the blockchain. The development is also designed to be adopted at scale across the entire industry, and allow the creation of a shared permissioned ledger for use across all trading partners, including multiple buyers, sellers, banks and trading partners, and later will probably also be used for all sort of commodities and much more.
This partnership represents signficiant momentum for the blockchain and will certainly push forward a move to the introduction of new developments using the distributed ledger technology.