INSIGHTS FROM AMPHORA
VAKT onboards NW-European barge post-trade processes
An interview with Stephanie Trabia, CCO of VAKT
VAKT is a post-trade communication channel between the participants involved in the physical oil or commodities markets. With the imminent launch in October of a platform for the NW-European barge market. Stephanie Trabia, CCO of VAKT, updates Amphora’s Ivan O’Toole on VAKT’s strategy for its post-trade platform.
The process of energy trading has become less manual and error prone. Energy Trade and Risk Management (ETRM) systems offer better visibility of the trade position and have made the process more efficient. But once the trade is agreed, communications between multiple parties still widely depend on massive, unwieldy email chains.
No-one can be certain an email has been received, or whether or not an electronic document is legally binding or may be accessible in future. Each time market participants send an email or chat message, that is information that at some point needs to be manually inputted into internal systems.
The barge sector in particular sees a lot of post-trade nomination communications. Each nomination involves roughly 20 emails. Traders and brokers need to be able to confirm trades, inspectors need reliable data feeds and instructions, banks need to be able to assess and offer trade finance. Ship owners need visibility of the charter party’s booking and terminals and pipelines need efficient capacity trading facilities. VAKT is now focusing on smoothing all these post-trade processes for the multiple parties in the NW-European barge market.
VAKT does not replace internal systems such as ETRM. It offers a link between these systems. The exchange of Information starts when the first trading party enters its own trade details into its own system. How do they know if their counterpart has entered the trade details? They don’t – normally. With VAKT, parties can exchange trade information and ensure they can see their counterpart’s details entered into their system. The system also highlights any discrepancy.
Digital integration with ETRMs enables a deal recap and an Instant record of the trade. Any changes to the trade data then flow through the system which picks up any anomalies and confirms the data. There is digital integration with documentation going to ecosystem participants such as inspectors, shipping and oil terminal companies as well as banks, brokers and agents.
Currently, it takes time for the bank to collect all the documents that it needs to proceed with trade financing of vessels or cargo. Enabling digital communication of data as well as documents such as letters of credit is key.
The system allows the customers to make sure that trade details are correct and they agree on the deal, but it is not, yet, a legal confirmation. That is a feature under development. In future, when customer clicks ‘confirm’, that will be legally binding and the customer will not need to send a contract.
Already, invoicing documentation is locked down by blockchain, ensuring fraud minimisation and smoothing the way to quicker payment of undisputed invoices. Correct data is provided efficiently to allow the customers to exchange accurate invoices, where all the data needed for the invoice will have been agreed in advance. This helps address widespread payment problems arising from banking instruction details being sent via email.
In addition, VAKT plans to expand its offering on the logistics side by bringing in more ecosystem participants such as agents and also by having more proactive features such as a logistics calendar that highlight necessary actions.
The benefits of VAKT’s post-trade platform are undeniable but there are barriers to adoption. VAKT is an effective complement to any ETRM system, such as Amphora’s. However, to get the full benefits of the platform it is still necessary to integrate ETRM and other internal systems with VAKT to avoid doubling up on processes. This integration work takes time and resources – but these need not necessarily be internal resources. Suppliers are ready to support businesses through this transformation.
The second issue is human. People have been using email, phone and even still fax for many years, and suddenly they are told that instead of sending and receiving 200 emails per day, they are going to use a new system. This sounds like a no-brainer but there is usually resistance. Users need to have confidence in the system – there is work to do around communicating the benefits to people’s daily working lives.
Thirdly, there is a reluctance to be on the bleeding edge. People don’t want to be the first to jump. Some people are not joining in the barge sector yet because they want to see how the platform is working. How are people using it? Are they happy?
Bringing service providers into the fold
TIn 2018, the VAKT consortium was joined by TOTAL, Chevron and Reliance, with Saudi Aramco following suit at the end of 2019. Service providers, such as inspection companies and port agents, enrich the value chain in the post-trade ecosystem. What is in it for them? Standardisation, completeness of information and fewer emails.
Currently, an inspector or terminal will receive an appointment or a nomination – but not necessarily with all the information they need to proceed. Each time they receive an email, they need to make sure that the information is complete and that they understand it correctly. Most of the time it is not complete, so they need to call the customer and check what they meant. Finally, they must input this information manually into their own system. Automating these processes delivers a real win for service providers.
Looking to the future - Global crude
Later this year, VAKT will shift its sights to the global crude sector. It will look beyond NW European barge movements to provide customers with the ability to manage vessel movements globally. Trade parties will be able to confirm their trades and nominate and organise the delivery of crude anywhere around the world. Once VAKT is established within the crude sector, at a later stage it will look to support products, such as waterborne markets and ultimately biofuels, where the ecosystem of parties involved in trade and supply is much more complex.
There are many disparate players in the market, each with their own ways of doing things. But, the high cost of manual procedures will become unsustainable in a market where the majority of parties are moving towards integration and automation. As partners in these complex ecosystems begin to see the benefits of integration, those left on the outside of the integrated platform may even find it an impediment to executing trade with a counterparty.
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