The world's first trade
transaction involving shipment of cotton
using the efficiencies of a distributed ledger, the Skuchain's Brackets system, for all parties has been undertaken by Commonwealth Bank of Australia, Wells Fargo and Brighann Cotton. The interbank open account transaction provides more efficient and effective method for the shipment of goods.
The transaction involving a shipment of cotton from Texas, US to Qingdao, China involved two independent banks combining the emerging disruptive technologies of blockchain, smart contracts and Internet of Things (IoT), Commonwealth Bank said.
The trade involved an open account transaction, mirroring a Letter of Credit, executed through a collaborative workflow on a private distributed ledger between the seller (Brighann Cotton (US)); the buyer (Brighann Cotton Marketing Australia); and their respective banks (Wells Fargo and Commonwealth Bank). The trade introduced a physical supply chain trigger to the terms of the transaction to confirm the geographic location of goods in transit before a notification is sent to allow for release of payment.
The tracking feature adds a new dimension, providing all parties with greater certainty compared with traditional open account and trade instruments like Letters of Credit, which focus on documents and data.
The use of blockchain technology creates transparency between buyer and seller, a higher level of security and the ability to track a shipment in real time. The advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger reduces errors and accomplishes in minutes what used to take days.
“The combination of these emerging technologies could eliminate many inefficiencies currently experienced in international trade. The benefits of lower costs and improvements to security through reduction of errors, risk and time, enable a company to achieve greater efficiency and have more predictable working capital,” explains Cameron Austin, general manager of Brighann Marketing.
Michael Eidel, executive general manager of Commonwealth Bank's Cash-flow and Transaction Services, said: “Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies. We strive to stay at the forefront of disruptive technologies to understand how they can be used to enable greater efficiencies and solve the real world challenges our customers face. The interplay between blockchain, smart contracts and the IoT is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain.”
“In this case, we demonstrated how a new approach to trade could benefit a joint Wells Fargo and Commonwealth Bank customer, Brighann Cotton. This marks another step in evaluating technology that, over time, could support the evolution of trade finance. While significant regulatory, legal and other concerns remain to be addressed with the technology, we are committed to engaging with our partners to explore potential applications within trade finance,” said Chris Lewis, head of International Trade Services for Wells Fargo.
Following the successful completion of this transaction, Commonwealth Bank and Wells Fargo have announced that they will continue to actively collaborate with trade finance clients, financial institutions, fintech companies and consortiums like R3, as well as players in the insurance and shipping industries, to ensure their clients benefit from the changes in technology across the global trade ecosystem. (RKS)
Fibre2Fashion News Desk – India