The physical nature of commodity trading and the risks associated with the supply chain

0


As the EVER GIVEN stranded in the Suez Canal, each day the waterway was blocked cost global trade more than $ 10 billion. The impacts on the global supply chain were quickly felt by consumers, with delivery delays for well-known brands as well as market concerns over the delivery of oil and other commodities to many countries.

It seems such an event was inevitable, but global markets were very ill-prepared, much like the coronavirus disease (COVID-19) pandemic. Hundreds of freighters found themselves in uncertainty as to their current passage, with very long delivery times and increased costs as a result.

Additionally, there were pre-existing delays for cargo already waiting to be loaded and in a freight climate experiencing a container shortage due to supply chain disruptions resulting from the COVID-19 pandemic. All of this has compounded a serious problem that is already causing enormous friction in the commodity supply chain.

Trade in agricultural products, such as natural rubber, is still a very opaque market and in many cases based on traditional paper methods. There are delays and inefficiencies at almost every step of the value chain, from producers to processors, traders and brokers to consumers. This leads to inherently higher price risks and volatility, thus exposing areas to innovate improved operational efficiencies along the supply chain, to unlock more opportunities for all market players. More open access to trade finance and insurance, coupled with a greater choice of appropriate trade and futures contracts, will cover the risks inherent in the transport of agricultural products. All of this can be solved through better use of technology, combined with an expert understanding of the industry to ensure that all areas of the market are covered and all known data points are included. For example, digital transformation can support the way trade finance agreements are financed and structured, to account for these risks inherent in freight, especially the transport of commodities.

Technology for the efficiency of the raw material supply chain

The technology is chronically underutilized in the agricultural commodities industry and will eventually take center stage. The Boston Consulting Group reported that there is $ 70 billion to be gained in added value through commodity trading by deploying appropriate technologies. Additionally, the COVID-19 pandemic has created new momentum for change, with new remote digital work environments illustrating the potential efficiency gains for more traditional businesses. Finally, the growing global proliferation of Internet connectivity is reaching rural areas where agricultural products, such as natural rubber, are grown. This makes digital connectivity and its additional benefits a reality for many other market players.

Better access to information and more advanced transaction structures

One of the main benefits for all market players using digital technology is the power to make the best decisions, accessing the right information, at the right time and in the right way. Another benefit is access to vast data and information used to think about how transactions can be structured so that the benefits can flow to all market players. For example, to protect against market price volatility or to structure income sharing programs to protect producers’ income. Technology and digital platforms provide the ideal environment for these activities to occur, especially with the risks inherent in transporting goods, as evidenced by the blockade of the Suez Canal.

Operational efficiency to improve margins for businesses of all sizes

Digitization is important to eliminate the fraud problems based on paper CAD systems and to accelerate these processes. Additionally, secure cloud-based solutions can provide anytime, anywhere access to organizations of all sizes. The use of modern technology will enable instant pricing, trade execution, real-time information exchange, dynamic risk management and transparent post-trade processing.

The investment required in technology by small businesses has historically been a barrier to the adoption of digital technologies within the agricultural commodity industry. However, with more independent collaborative platforms available today, this is no longer a problem. Small businesses can now participate at no up-front cost in pay-as-you-go models to increase visibility and leverage smart logistics and support services, such as automated contracts, financing, and marketing to achieve business results. international markets.

Matching the right organization with the right opportunity – as a personalized outcome – for businesses of all sizes is now possible. This allows the agricultural commodities industry to weather its most recent downturn and focus more on sustainability goals.

Technology is the future of agricultural commodities

The use of technology can increase margins and enhance innovation, supporting the natural rubber industry in its recovery and supporting it in its next period of growth. It enables information to be used more efficiently, in real time, removing friction in the supply chain, promoting better decision-making and better results for all, and ensuring better systems are in place. discovery and pricing of contracts.


Share.

Comments are closed.