Blockchain could make a big splash in the global supply chain of big oil companies.
VAKT, a London-based blockchain company that tracks physically traded commodities, is trying to effect such a move by picking up primetime partners in the oil industry. Already, Royal Dutch Shell (RDS.A) (RDS.B) , Equinor (EQNR) , and BP plc (BP) are looking to bolster their supply chains with the technology.
"Launching into our first market with such high-calibre first users is a transformational moment for us and the industry," VAKT CEO John Jimenez said. "But it's just the start: success for a blockchain solution depends on widespread adoption and we're looking forward to seeing the ecosystem grow."
ICYMI. #BP, amongst other world-leading #energy producers and banks joined forces to launch @VaktGlobal #blockchain platform https://t.co/Hp13Jx0Y9k pic.twitter.com/CgxAd1lYZp— BP India (@BP_India) December 3, 2018
The technology will track contracts and allow each of the companies in the consortium to track the same ledger.
"Digitalisation is changing how the energy value chain works. It's an exciting time," said Andrew Smith, EVP Trading & Supply, Shell International Trading and Shipping Company Limited. "Collaboration with our peers and some of the industry's key players is the best way to combine market expertise and achieve the scale necessary to launch a digital transaction platform that could transform the way we all do business. Ultimately the aim is improved speed and security, which benefits everyone along the supply chain from market participants to customers."
Indeed, blockchain's adoption has helped other industries control their supply chain management, most notably Walmart (WMT) , which has employed blockchain for its leafy green tracking. The necessity for a company like Walmart to employ the blockchain across its company could provide a blueprint for the oil industry.
"Any time there is a collection of actors that need to work together but don't trust each other, that creates a trust gap, they all want to keep control of the data," Kevin Werbach, professor of business ethics and legal studies at the University of Pennsylvania's Wharton School of Business told Real Money. "That leads to all kinds of errors and inefficiencies."
He said that in Walmart's case, which is possibly the largest test case available in the United States, has shown that blockchain ledgers have massively cut down on tracking commodities.
"Let's say someone gets sick, like we've had with romaine lettuce, how long does it take to trace it back?" Werbach asked, noting that Walmart found it to take six and a half days. "They put it on a blockchain...they got the six days down to two and a half seconds."
Of course, the logic of this supply chain can easily be applied to oil in reducing supply chain inefficiencies significantly while also diminishing any foul play in an industry that often falls victim to graft.
For the companies looking to employ this new ledger technology, the cost savings could be tremendous, both in fraud reduction and in an Amazon (AMZN) -esque supply chain streamlining.
To be sure, this is still a nascent segment of the industry and will require time to develop.
"This is a big transformation in the fundamental platforms all of Wall Street and much of business," Werbach said. "Were really just seeing the start of it now."
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