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A multitrillion-dollar industry is finally undergoing a digital makeover as commodity traders enlist technology to solve longstanding problems in their world. From crude oil to soybeans, cocoa, cotton and chemicals, the physical commodities trade involves the buying and selling of raw materials that are used in daily life as fuel, food or ingredients for finished products. About $10 trillion worth of commodities are produced and consumed yearly, according to an estimate from the government of Singapore, a trading hub for many such goods. Despite the size of the industry, much of the global business is still run traditionally — and on paper — particularly in the trading of non-industrial, agricultural products. Hordes of middlemen and observers have weighed on the industry's profits, all capitalizing on the principal question: How do you ensure that the cargo you receive was exactly the one you ordered? "Trading is all about manual documentation. They have no trust between counter-parties, so they hire middlemen, intermediaries to check if the documentation is right. It's actually [like] the old times — they courier the documents and everything, even in today's world,” said Srinivas Koneru, the founder of Arkratos, a technology company working on the problem. That arduous transportation process not only cuts into economic efficiency, but also creates multiple opportunities for fraud at each point of contact. Years after many major industries have gone largely digital, new technologies to tackle the problem are beginning to gain traction in the commodities world. Blockchain technology, for instance, has thus far proven to be a secure and unchangeable record keeping tool that has the potential to help track cargo.

As the process now stands, commodity transactions require a host of important papers. That includes shipping documents that are transported throughout lengthy supply chains, involving multiple parties and different territories. Those documents are stamped manually and emailed back and forth. Invoices are scanned manually and attached to emails. As cargo changes hands and ships, it goes through individuals, vessels, companies and countries — all of which need to adhere to different regulations, systems and formats of documentation. That makes it difficult for fraudulent alterations to be detected. In other words, it is entirely possible for almost any document to be intercepted and changed at each stage between the original supplier and end consumer. “The way that they process documents hasn’t changed in about 20 years. It’s fairly manual,” said Randy Wilson, a commodity trading and risk management leader at Deloitte in the U.K. Wilson was speaking in May at a press briefing about the oil and gas industry, but traders across the wide spectrum of commodities report similar issues. There are middlemen and companies that can verify the authenticity of goods and papers at any stage, but that makes the process more costly and time consuming. For instance, any discrepancy needs to be crosschecked over the phone followed by documents being resent through either email or courier. Those providers of verification services, which include surveyors, will be the first in line to be disrupted in a technology revolution tackling the issue.

Beating fraud