Fox & Lillie and HSBC make world-first blockchain wool deal

Sheep Central, April 1, 2019

Fox & Lillie managing directors James and Jonathan Lillie.

AUSTRALIAN wool exporter Fox & Lillie and the HSBC bank have completed what is believed to be the industry’s first cross-border blockchain transaction with a Chinese importer involving a digitised letter of credit.

The live transaction for a container load of wool – about 19 tonnes greasy – was completed late last month for a shipment to the buyer, China SDIC International Trade Nanjing.

Fox & Lillie brokerage manager Eamon Timms said blockchain is a system of connected servers that are used to store and verify information between trusted parties.

Using Voltron, a blockchain-based trade finance network, HSBC China issued a digitised letter of credit on behalf of SDIC Trade Nanjing. Fox & Lillie then reviewed, verified and uploaded its own trade documents to the platform to complete the transaction.

A letter of credit is used in international trade and is a guarantee of payment from a financial institution to a seller of goods, subject to clearly defined terms and conditions. HSBC said trade transactions conducted using blockchain technology allowed all parties to review the documents in near real-time, which reduces cost, risk and lead times. Digitisation of the letter of credit process will give Australian exporters a competitive edge, the bank said.

Fox & Lillie managing director James Lillie said the company, as one of Australia’s oldest and largest family-owned wool exporters prides itself on its resilience. The company’s readiness to innovate and embrace change has played a large part in its evolution, he said.

“This technology was inevitable and we were excited to work with pour partners SDIC Trade Nanjing and HSBC to help facilitate this transaction and to take a brief ‘peek’ into the future.”

HSBC Australia’s head of global trade and receivables finance Joseph Arena said the “live deal” between Australia and China built on blockchain transfers that the company had executed over the past year in a number of world markets, validating the commercial and operational viability of the digital solution.

“This live deal shows the evolution of HSBC’s blockchain strategy and we look forward to extending the benefits of this technology to more clients over time.”

Mr Timms said a letter of credit, as the main payment process used between wool exporters and buyers, is very safe, but is very detailed and can be very time-consuming. It can involve the exchange of numerous draft letters of credit before a final LC is agreed upon.

“It can take, in a worst case scenario, a couple of weeks, but most times it is not that long.

“Blockchain allows any party to a contract to make changes online and then the other parties can also make changes immediately so that the time factor is cut out considerably,” he said.

“It just makes it hugely more efficient, transparent and secure.

“Blockchain is being looked at by all sorts of industries as being the future of data transfer between trusted parties and data capture.”

Blockchain involves the cross-referencing of encrypted data among secure servers, he said.

“So you’ve got that level of security of your data and you’ve got that peer-to-peer verification of data, so that keeps it so safe.”

“We believe it is a world-first in wool,” Mr Timms said.

Further use of blockchain in the industry would involve education of mills and not all banks are currently approved to use the technology, he said.

“It will start in a limited fashion, with a view to becoming a more mainstream part of our processes.

“At this point, it is being used for the payment process, obviously there are other parts to the trading of wool to do with the documentation, and that is a bridge yet to be crossed,” he said.

“We believe that with the time and cost savings using blockchain in the payments process, it will inevitably become a more common practice.”

About 43,000 letters of credit were issued into and out of Australia last year, underpinning US$42 billion in trade, according to global financial messaging service provider SWIFT.


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