When will the blockchain come of age in trade finance? The topic appears with relentless regularity on most trade-related conference programmes, and while there have been many proofs of concept and pilots, how close is the industry to seeing some action?

Digitisation has been difficult as cross-border trade involves a large number of variables when communicating information such as country of origin or product details, and transactions generate high volumes of documentation – making some deals uneconomical. It is for this reason that distributed ledger technologies (DLT) – such as blockchain that uses a consensus formation among participants to enable transactions to take place in the absence of a trusted central authority – are seen as a possible solution.

Corporates are keen to experiment with this technology to simplify the process of trade finance across borders and the handful of deals that have been done have one thing in common – the corporates themselves are driving change. This article reviews two trade finance transactions on the blockchain that have actually moved beyond the drawing board (Ornua’s letter of credit (LC) and Marubeni’s LC in the trade chain) and a third pilot that has significant implications for the entire container shipping industry (Maersk and IBM).

At EuroFinance 2017 in Barcelona, Simon Taylor, former Vice President for Entrepreneurial Partnershps at Barclays who went on to co-found fintech consultancy 11:FS told delegates how the bank had provided a blockchain solution to Ornua (formerly the Irish Dairy Board) in the form of a letter of credit transaction.

Announced by Ornua on 6 September 2016, the LC deal between Ornua and Seychelles Trading Company was handled on a platform developed by Israeli start-up fintech Wave, one of 11 start-ups that had gone through the Barclays Accelerator programme in 2015. At the time, Group Trade Finance Manager David O’Rourke said, “Moving to paperless trade would be hugely beneficial in supporting the supply chain, through reduced costs, error-free documentation, and fast transfer of original documents to our customers worldwide.”

In his article, How blockchain can restore trust in trade, published on 1 February 2017, Jesse McWaters, Project Lead for Disruptive Innovation in  Financial Services at the World Economic Forum, observed, “The transaction guaranteed the trade of almost US$100,000 worth of cheese and butter between Irish agricultural food co-operative Ornua and the Seychelles Trading Company. The process – from issuing to approval of the letter of credit, which usually takes between seven and 10 days – could be reduced to less than four hours.”

On 6 July 2017, Japanese conglomerate Marubeni Corporation and Sompo Japan Nipponkoa were involved in a trade transaction between Australia and Japan using blockchain/distributed ledger technology (DLT).

Maersk, the Danish container shipping giant has been testing a blockchain solution from the University of Copenhagen to digitise the ships’ cargo inventories. It ran a Proof of Concept (PoC) with IBM in September 2016 tracking a container of flowers from the Kenyan port Mombasa to Rotterdam in the Netherlands. As with the Marubeni deal the technology for this pilot is based on the Linux Foundation’s open source Hyperledger Fabric, designed to support multiple parties across the ocean shipping ecosystem. It is hosted on the IBM Cloud and its high security business network.

On 5 March 2017 IBM and Maersk announced their collaboration “to use blockchain technology to help transform the global, cross-border supply chain”. Of the US$20trn of global trade that flows each year, 90% of it is carried by the ocean shipping industry. “IBM and Maersk intend to work with a network of shippers, freight forwarders, ocean carriers, ports and customs authorities to build the new global trade digitisation solution,” stated IBM. It adds that the digitised process helps “reduce fraud and errors”, “reduces time products spend in the transit and shipping process, improves inventory management and ultimately reduces waste and cost”. Tellingly it notes, “Maersk found in 2014 that a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organisations, including more than 200 different interactions and communications among them.”

In the “Streamlining global trade video” (published November 2017) that has attracted nearly 2000 views already IBM and Maersk demonstrate the problem and the solution in just over three minutes (see Figure 1)

Deutsche Bank has been investigating DLT, blockchain and transaction digitalisation technologies since 2014.