Bumps on the road to a smarter world

Author Konstantin Rozhnov

The hype surrounding new ideas and technologies can be such that you might be forgiven for expecting the world you know to change beyond recognition at any minute.

The hype surrounding new ideas and technologies can be such that you might be forgiven for expecting the world you know to change beyond recognition at any minute.

And sometimes these changes do happen fast — just look at how dramatically the arrival of smartphones has altered our habits in the past few years. But often innovations fail to make an impact as significant and prompt as their proponents hope.

In the world of commodity trading, one of the hottest topics right now is the digitisation of the trading process – cue ‘smart contracts’ and ‘blockchain’. In very simple terms, we are talking about electronic platforms, where participants in a trade – importers, exporters, shipping companies, warehouses, banks – have access to an encrypted shared database that stores records, or blocks, in an ordered list. It will allow the parties involved to easily track and trace where they are in the process, decrease the amount of documentation flying back and forth between them, cut the number of mistakes, reduce costs, make funds required for the transaction available earlier, and strengthen protection against fraud. It won’t brew the coffee, though.

Rabobank’s chief innovation officer for trade and commodity finance, Angelique Slach, told the FT Global Commodities Summit in Lausanne this week that if you count all of the steps, from the initiation to the closure of a transaction, you get as many as 135 if you do the deal in a traditional paper-based way, but as little as 20 if you digitise the process.

“Typically, if you load a ship in west Africa... it takes about 40 days before it arrives at the end point, which in today’s world is crazy. This is what the Romans used to do,” says trading firm Mercuria chief executive Marco Dunand. “We had an experience... where we ran in parallel the usual chain of these documents going around, and we tried to speed up the process with blockchain, and we succeeded in doing the whole turnaround in about seven days.”

But even those working on developing these electronic platforms – including Mercuria – concede that it could take many years before the industry fully embraces this way of conducting trading transactions. The many hurdles to adoption include the eventual need to streamline competing platforms and technologies and sort out legal and jurisdiction issues.

“This will take a consortium approach — it is not going to be solved by an individual player,” says Mercuria’s global head of operations, Alistair Cross.  And one trading executive went as far as to suggest that unless banks push blockchain as the only way of doing business, it will be very difficult to make most participants switch to it in the short term.

Another hot topic in the world of energy is how fast electric vehicles can penetrate the car market and, as a result, how much fossil fuel demand can be displaced by them. The IEA suggested late last year that the number of electric vehicles could rise to 30mn by 2025 from about 1.3mn in 2015, displacing only 300,000 b/d of oil demand – much less than 1pc of total oil consumption. Environmentalists see these estimates as too conservative.

Trading house Vitol's chief executive for Europe, the Middle East and Africa, Russell Hardy, says there is no doubt electric vehicles are coming, and that they are going to play a bigger role in cities in Europe and the US than they are elsewhere.

“I think there are 1.1bn cars today, and there will be 1.5bn-1.6bn cars by 2025, and we expect about 100mn of those to be electric. So, there are 300mn-400mn conventional cars still to hit the roads over the next 10 years,” he says.

Even trading firm Gunvor’s chief executive, Torbjorn Tornqvist, whose wife owns a Tesla, does not get carried away by the potential of electric vehicles.

“I think costs are coming down, performance is better for these cars, and for politicians it is a good thing. Will it have a huge impact? No. Will we see them more? Yes,” he says.

Trading company Castleton’s chief executive, Bill Reed, has different preferences, though: “I might be extremely politically incorrect, but as an American born in the 1960s, I like cars with big engines. I am hoping that everyone gets a Tesla, so that the demand for [oil] products drops and I get to buy gas cheaply.