Digitally transforming trade finance in the oil industry is a tremendous opportunity, but how does the sector overcome the obstacles and jump on board the opportunities? Here are some industry insights from a recent Energy Trading Week webinar.
Oil is the world’s most important source of energy. The oil industry is also a major contributor to economies, supporting jobs and ensuring energy security. Driving digital transformation in the sector is a trillion-dollar opportunity by most accounts, as it can improve operational efficiency and expenditure as well as reduce the complexity of the oil trading supply chain.
While there is tremendous opportunity to digitise trade finance processes like Letters of Indemnity (LOIs), standardisation is an obstacle. Many in the industry have described it as a chicken and egg problem between standards and solutions.
Which should come first – standards or solutions?
From Contour’s perspective as a solutions provider, it’s no surprise that we think the solution comes first. “It is more beneficial to build standards after the industry has started using a solution for a while. Trying to create a standard without knowing the business or the solution is futile as it is hard to understand what the format and outcome should be,” said Contour’s CEO, Carl Wegner.
Vopak is an independent tank storage company with a presence in some 25 countries. Whether its local, country or company standards, there are considerable differences across different jurisdictions and a “huge opportunity to align those and come to new global standards”, according to its innovation manager Erik Lankamp.
“We want standards to evolve in an agile way, and they need to evolve through collaborative discussion – having real business people involved who can see what definitions actually matter, to define the data quality, the handoffs and to bring about those real changes,” commented the moderator of the panel, Peter Harvey, Programme Director of Energy LEAP, a not-for-profit body that promotes collaboration across the industry.
“It is a journey where everyone can learn and collaborate. But it does require taking that first step and deciding to embrace a digital way of doing things.”
– Carl Wegner, CEO, Contour
Standards are essential but that is a process as well. “In an ideal world, we would just have one, common, global standard and the industry should not wait around for standards to happen before using a solution because not everyone is going to use the same format,” said Wegner. “If we all waited for one format before starting to use video conferencing tools like Zoom or Teams, there would have been zero virtual discussions for the past three years!”
Standards will help systematise things in the future, but if no one starts using the solutions, the less we learn about how to solve the pain points.
While technology is a huge enabler, change is challenging and costly for many organisations as there are often heavy investments to change their processes. One feedback that Contour hears from potential customers is that they only want to get on board its network when all their buyers or sellers and banks are on the system, noted Wegner. Unfortunately, it does not work that way.
“It is a journey where everyone can learn and collaborate. But it does require taking that first step and deciding to embrace a digital way of doing things,” said Wegner.
Driving digital adoption
When it comes to driving digital transformation in a mature industry, the opportunity outweighs the obstacles.
Harvey recounted that six months ago, one of its board members assessed the entire oil industry globally and added up the friction, the errors, the rework and the wasted resources that occurred due to manual processes. The number that was sitting on the table wasting away was at least $6 billion!
This is where digitisation is improving operational efficiency and driving down costs. Contour’s network is a collaborative environment where four or more parties can see a trade finance transaction moving in real time. Where there is visibility and transparency over a transaction, decision making, freight booking, cash management and virtually every operational process is sped up as a result.
So how does the industry move ahead? It’s through collaboration. As solutions and standards evolve, there will be a way to drive improvements collectively. Harvey summed it up best when he said that “there isn’t going to be any great big bangs, but we should take confidence from the fact that we do have evidence this can work.”
Learn how you can start your digital trade journey by contacting us here.