Louis Dreyfus Company sets a new standard in commodity trading industry
“The Easy Trading Connect (ETC) platform’s real-time nature will accelerate trading enormously – cutting days, or sometimes even weeks, out of transaction timelines. At the same time, the platform’s advanced security features ensure the immutability of data, thanks to its strong anti-fraud features, instilling trust in the system. It is such a substantial change, that it may be difficult for newcomers in the future to comprehend that the industry still relied on paper in 2017!”
The Fourth Industrial Revolution is changing the world. Its impacts are being felt in our daily lives and many business areas. One of the sectors where digitalization has been transformative is commodity trading. Louis Dreyfus Company, a leading merchant and processor of agricultural goods operating in over 100 countries, has successfully completed the first full agricultural commodity transaction using a blockchain platform. For the first time ever in the agribusiness sector, the trade included a full set of digitalized documents.
We discussed the new transactional model and its potential impact with Robert Serpollet, Global Head of Trade Operations at LDC. Committed to the pursuit of operational excellence, Mr. Serpollet leads the adoption of innovative initiatives such as blockchain, Robotics Process Automation, and Artificial Intelligence, across LDC’s trade operations structure. He is one of the architects behind this new era of digital trade flow management.
Mr. Serpollet listed numerous benefits of using a blockchain platform, including a fivefold reduction in time spent on processing documents and data, the ability to monitor an operation’s progress in real time, data verification, reduced risk of fraud, and a shorter cash cycle. He referred to blockchain as a part of a digital revolution in commodity trading commenting, “it is such a substantial change, that it may be difficult for newcomers in the future to comprehend that the industry still relied on paper in 2017!” He continued, “technology can bring more security and efficiency to trading, resulting in considerable benefits for our customers, and all participants in the supply chain.”
Robert Serpollet, Global Head of Trade Operations at LDC, answers our questions:
Could you please provide us with some brief background information on LDC and its activities?
Louis Dreyfus Company – or LDC, for short – is a leading merchant and processor of agricultural goods globally. Founded more than 165 years ago, we are a private, family-owned company, present at every step of the value chain – from farm to fork. Our product portfolio is quite diverse, including Grains, Oilseeds, Rice, Coffee, Cotton and Sugar, to name a few. We use our know-how and global reach to serve our customers around the world, bringing the right product to the right location, at the right time – and doing so safely, responsibly and reliably. This is especially important, considering the fact that we are active in more than 100 countries, originating, processing and transporting approximately 81 million tons of goods every year!
LDC is ambitious on innovation and has invested in digitalization, having recently announced the completion of the first full agricultural commodity transaction using a blockchain platform. This is a big success and shows the entrepreneurial spirit of the company. Could you tell us about this success story? How does this blockchain technology work?
The Easy Trading Connect (ETC) platform was designed to digitalize and standardize different types of commodity transactions. Following initial testing with other types of commodities, the platform was adapted to the agricultural sector’s particularly complex and rigorous documentation chain flows. In addition to the financing aspects, it covers the full set of documents involved in a typical transaction, including the signing and processing the sales contract at the start.
The way blockchain technology works is that it creates a decentralized ledger, recording all transactions that happen in a peer-to-peer network. The decentralized platform provides better data governance (since no single party is in control), enhanced security through strong encryption, increased legal certainty through immutability of data, and traceability over a robust audit trail.
Between November and December 2017, this enhanced blockchain platform was used to execute a full soybean shipment transaction from the US to China. Louis Dreyfus Company was the seller and Bohi was the buyer, with three banks (ABN Amro, ING and Société Générale) issuing and confirming the letter of credit. Russell Marine Group and Blue Water Shipping issued the required certificates, while the U.S. Department of Agriculture (USDA) provided guidance on how to include phyto-sanitary certificates in the process.
The results exceeded our expectations. There were significant efficiency improvements for all parties involved, particularly with the elimination of task duplication and non-value adding work – for example, cutting time spent on email exchanges, re-keying, sending and signing documents, including the identification of any discrepancies. Additionally, thanks to the platform’s automatch feature, the conditions of the smart contract were automatically fulfilled.
Not only was time spent processing documents and data reduced fivefold, but we were also able to monitor the operation’s progress in real time. Data verification, reduced risk of fraud and a shorter cash cycle were also amongst the benefits.
How would you define the blockchain-based transaction? Would you call it a “digital revolution in commodity trading”?
The platform’s success has clearly shown the huge potential of distributed ledger technologies, when it comes to advancing commodity trading and financing.
Indeed, blockchain is part of a digital revolution in commodity trading – alongside other technologies, such as Robotic Process Automation and Predictive Modelling (enabled by machine learning), which can eventually improve traditional tasks like yield forecasting or balance sheet analysis. Technology can bring more security and efficiency to trading, resulting in considerable benefits for our customers, and all participants in the supply chain.
What are the benefits and advantages of using a blockchain platform for all supply chain actors?
Enhancing efficiency and further strengthening security in the processes related to trading and moving commodities around the globe can help us reduce cost and risk, eliminate errors, and shorten the payment cycle. These are concrete benefits for all participants.
What is the cost of establishing such a system?
It is a little early to be discussing deployment cost. At the moment, the underlying blockchain technology options are not ready for production use. The results proved part of the value proposition, in terms of cost reduction, speed, and trust, but since the sample was limited, more testing is needed before we reach the point of a large-scale adoption.
How will this new technology affect global trade flows? What are the potential impacts on commodity trading?
The platform’s real-time nature will accelerate trading enormously – cutting days, or sometimes even weeks, out of transaction timelines. At the same time, the platform’s advanced security features ensure the immutability of data, thanks to its strong anti-fraud features, instilling trust in the system.
It is such a substantial change, that it may be difficult for newcomers in the future to comprehend that the industry still relied on paper in 2017!
We talked about the advantages of the blockchain-based service. Do you think the system has any risks or handicaps? Are there any risks of abuse?
If anything, the system’s advanced security features will reduce the ability of any actors operating in bad faith to play a role on the platform.
On the other hand, more work is needed to support scalability, interoperability, integration with the legacy systems, the definition of common standards and the platform’s adoption by the authorities.
This will take some time, as is the case with any new technology transitioning from Proof of Concept to production. In the meantime, some parties may want to use the platform to manage transactions between their subsidiaries or with “friendly” partners.
Are there any other innovative solutions or projects that LDC is working on?
Innovation is an integral part of LDC’s DNA. We continuously explore new technologies that could offer more efficiencies and synergies. Market conditions and demands change all the time, and we must adapt quickly, to continue meeting our customers’ evolving needs.
A recent, concrete example of this is the launch of a new global area within LDC, responsible for Food Innovation projects. As a part of this initiative, we are currently exploring new products and supply chain solutions, assessing business opportunities and potential partnerships, and defining which innovations should take priority over others. The project will operate in close coordination with all our existing platforms (business lines).
We believe that innovation, combined with technological investments, will greatly improve the capacity of agribusinesses to meet the needs of a rapidly growing global population in a sustainable manner.
Is there anything else you’d like to add?
It is now time to identify specific flows that could benefit from this technology in the short term and start discussing, with other leading players in the agricultural commodities sector, how we can work together on the definition and eventual adoption of common standards.
Partnership is an essential prerequisite for this new digital technology to realize its full potential, and eventually transform the commodities sector. We now need to collaborate closely with the banks and other major agricultural commodities merchants, and define the best way to adopt this technology in our context.
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