Blockchain – that newfangled concept seems to be catching on quickly and moving along quite nicely in the shipping and freight industry..
A Blockchain is a ledger that uses cryptography, the internet and computers (naturally) to create, share, transfer, track and secure assets and transactions (represented/organised as blocks) belonging to everyone to fulfill a certain function..
Unless the previous transaction is not completed in the chain and shared forward with a timestamp, the next transaction cannot happen..
In the first transaction of its kind in India, HSBC India and ING Bank Brussels have enabled, successfully executed and completed a full blockchain driven trade finance transaction between India’s Reliance Industries and USA’s Tricon Energy..
The Letter of Credit (LC) was issued by ING Bank for Tricon Energy USA (importer) with HSBC India as the advising and negotiating bank for Reliance Industries, India (exporter)..
This blockchain enabled transaction was completed using the R3’s Corda blockchain platform integrated with Bolero’s electronic Bill of Lading (eBL) platform to issue and manage an electronic Bill of Lading..
As per HSBC, this allowed a digital transfer of the title of goods from the seller to the buyer in the underlying trade and also enabled the underlying trade to be fully digitised..
R3’s Corda blockchain platform is reportedly a single shared application rather than an application requiring multiple isolated digital systems across various counter-parties, located around the globe..
So why is a blockchain letter of credit transaction special or how is it beneficial..??
In a conventional Letter of Credit transaction, physical copies are transferred between parties by post, courier, fax or scans..
Such manual processes greatly impacted on the time taken for transactions between the customers and the banks especially when there are shipments with short transit times..
The time and cost involved in processing these paper documents often became deterrents for shippers and impacted the pace of the trade..
According to Srikanth Venkatachari, Joint Chief Financial Officer of Reliance Industries who was the shipper in this transaction,
The use of blockchain offers significant potential to reduce the timelines involved in exchange of export documentation from the extant 7 to 10 days to less than a day.
When adopted at scale, it helps in significant optimisation of working capital. Further, use of blockchain in trade finance enhances transparency, security and synergy across all the parties and stakeholders involved.
We are excited to partner with HSBC on digitalisation of trade finance. This reflects our continued commitment to embrace emerging technologies and industry first initiatives...
This transaction validates the commercial and operational viability of blockchain as an alternative to conventional exchanges for paper-based documentation.. This solution is a significant improvement for any organisation involved in buying and selling goods internationally, as it truly brings together all parties onto one platform..
The Head of Global Banking and Markets at HSBC India, Hitendra Dave noted that,
The use of blockchain is a significant step towards digitising trade. It has a transformative impact on trade finance transactions and enables greater transparency and enhanced security in addition to making it simpler and faster.
The overall efficiency it brings to trade finance ensures cost effectiveness, quicker turnaround and potentially unlocks liquidity for businesses. We’re delighted to partner with Reliance Industries and support enhanced digitisation in trade finance.
We believe that the collaborative approach adopted to develop this technology has the potential to transform conventional trade finance.
It has been further reported that eight banks namely, HSBC, ING, Bangkok Bank, BNP Paribas, CTBC Holding, NatWest, SEB and Standard Chartered together with US-based enterprise blockchain software firm R3 are working on an open source-based system with plans to expand the network and drive adoption across the industry..
Such a transaction however is not new for HSBC as they first broke ground on blockchain trade transactions when they facilitated a bulk shipment of Soybeans for Cargill from Argentina to Malaysia..