Blockchain moves out of the shadows into the mainstream

A growing list of major traders, shipping lines, energy firms and financial institutions are probing the opportunities of distributed ledger technology

Energy major BP this week became the latest big-name player to reveal it is actively investigating the prospects for using blockchain to make its oil and gas trading more efficient.

It comes after a range of companies, including AP Moller-Maersk, Mercuria, Hyundai Merchant Marine, HSBC and Deutsche Bank, committed resources to study the outer limits of new digital technologies.

No one has yet claimed to have found a new and easy-to-implement solution to the inherent costs and risks of managing multimillion-dollar transactions between different entities worldwide.

And, certainly, there appears to be no one in the shipping space who has yet unlocked an earth-shattering process that will reshape business relationships across the industry.

Yet the intensity of the work now being committed would suggest there is confidence that blockchain could provide significant competitive advantages.

BP has been running experimental blockchain trades in parallel with live trading systems, in partnership with Italy’s Eni and Austria’s Wien Energie.

In theory, blockchain trading can be more efficient than traditional methods by being faster and easier to verify.

"In theory, blockchain trading can be more efficient than traditional methods by being faster and easier to verify"

Mercuria, the major trading house, said earlier this year that it had shipped and sold a cargo of African crude oil to China using blockchain, or distributed ledger technology as it is more formally called.

It is not just the energy and commodities houses that are experimenting with the technology.

Recently, Hyundai Merchant Marine completed a pilot voyage using blockchain to enable paperless processing of reefer containers carried between Busan and Qingdao. A second voyage of dry containers to India is planned this month.

And, in September, 14 Japanese companies — including the "big three" shipping lines of MOL, NYK and K Line — joined a consortium studying blockchain’s ability to smooth information flows with customers.

6603c99f0f51445f2288ccd29721a488 Paperless trading: Insurers and brokers in the Lloyd's insurance market face the challenge of abandoning paper documents and using digital platforms instead  Photo: Scanpix

Insurance processes are also undergoing scrutiny. Insurers MS Amlin and XL Catlin have joined forces with consultancy firm EY, Microsoft and AP Moller-Maersk to use an encrypted blockchain database to securely handle insurance contracts for a limited number of ships. A full roll-out is planned for 2018.

Bruce Carnegie-Brown, the new chairman of Lloyd’s, spoke this week of the need for the insurance market to accelerate the modernisation of its processes through more digitalisation.

Unless it does that, there are fears its high costs associated with traditional paper-based transaction and record-keeping systems will drive business elsewhere.

Intermediaries in many parts of the shipping chain — from shipbrokers to insurance brokers — face being squeezed out by the rush to embrace blockchain and other digital technologies.

Barry Rogliano Salles chairman Tim Jones told TradeWinds last week that his company was watching technology developments — including blockchain — very closely.

If technology enables charterers to pay less, or even nothing, for transactions, then brokers would need to work out how to make them pay for knowledge, he argued.

Blockchain — which is the underlying digital process — has been tainted by its origins underpinning the controversial and volatile Bitcoin cryptocurrency.

The flourishing of a plethora of new cryptocurrencies, in largely unregulated markets, has triggered increasing alarm.

China has banned new currency offerings, while Jamie Dimon, head of banking giant JP Morgan, recently called Bitcoin a “fraud” and “worse than tulip bulbs”.

However, blockchain itself has gained credibility as a digital tool that may lead to the refashioning of many transactions in the trading and shipping space — and the pace of change is accelerating at a rapid rate.