BNP Paribas and HSBC Singapore have completed Singapore’s first fully digitised end-to-end letter of credit transaction between two different companies. The deal involved Rio Tinto selling a bulk shipment of iron ore originating from Australia to China to its trading customer Cargill.
It represents a move that will take the digitisation of trade finance a step closer to becoming a commercial reality, according to BNP and HSBC.
As part of the transaction, BNP issued a letter of credit (LC) over the blockchain on behalf of Cargill to HSBC Singapore acting on behalf of Rio Tinto.
Both BNP and HSBC enabled a transfer of electronic bill of lading (eBL) over traded goods using a digital LC for the first time in Singapore, by integrating the Voltron trade finance solution (through R3’s Corda blockchain platform in the back-end) with Bolero’s eBL system.
Benefits of the system include:
- Digital transactions ensure trade flows are faster, simpler and more efficient;
- The LC issuance was completed in less than two hours compared with one to two for traditional, paper-based LCs;
- More counterparties were engaged in this transaction, compared to previous blockchain transactions with full digital integration, indicating there is increased interest across the industry to digitise cross border transactions;
- The faster documentation turnaround for each shipment can potentially lead to increased flexibility in liquidity management resulting in working capital optimisation.
Zoran Lozevski, Head of Global Trade Solutions, Asia Pacific, BNP Paribas, said: “Blockchain technology is an important pillar in our innovation agenda and we believe that transactions like this one will help achieve greater efficiency and transparency in trade finance for the benefit of all players in this space.”
Iain Morrison, HSBC Singapore Head of Global Trade and Receivables, said: “The transaction represents a significant advancement of this solution since our first transaction earlier this year, which further validates its commercial and operational viability to establish a new era of digital trade. Together with banks and the trade finance industry we will continue to improve this solution by adding new features and functionality as we move towards a commercial launch.”
Rio Tinto Head of Commercial Treasury, Abel Martins-Alexandre said blockchain offers efficiencies and greater transparency, while also creating a viable new offering to Rio’s customers and stakeholders along the supply chain.
“This pioneering transaction demonstrated our commitment to partnering with our customers to meet their needs, to stay agile and responsive to opportunities for improving efficiencies, and make our respective businesses stronger,” he added.
Lee Kirk, Managing Director for Cargill’s Metals business: “What was previously a complex process is now accessible via a more modern, digitally-based approach and a secure platform. At Cargill, we are transforming our supply chain with digital technologies like blockchain in trade finance, commodity trade operations and traceable food programs to better serve our customers across the globe.”