Baltic Exchange, a leading provider of global freight market information and other maritime services, and fintech-enabled fund manager TradeFlow Capital Management have completed a pilot escrow transaction involving a shipment of agricultural commodities from India to China.
The commodity trade, executed through TradeFlow, heralds a new age in the fast and secure digital exchange of ownership of physical commodities and payment, according to a press statement.
The service will initially focus on the underserved segment of small and medium-sized enterprises (SMEs) operating in the bulk commodity markets.
The successful test case paves the way for greater adoption of technologies and escrow processes which will reduce paperwork, minimize transaction time, and improve the overall efficiency of commodity trades, increasing the turnover velocity of capital in the commodity trade ecosystem without compromising security, the companies say.
With the global trade finance gap growing to a record high of US$1.7 trillion in 2020, according to the Asian Development Bank, the use of escrow in a commodity trade holds the promise of unlocking and enabling additional SME commodity trades worth billions of dollars each year.
The Baltic Exchange, which Singapore Exchange acquired in 2016, runs an independent escrow service that holds funds on behalf of clients in dedicated escrow bank accounts. The service seeks to meet the needs of a range of markets and use cases including asset sale and purchase transactions, disputes and as security for vessel chartering activities.
Tom James, chief executive officer and chief investment officer of TradeFlow, says: "Partnering with the Baltic Exchange is instrumental to achieving TradeFlow's mission of enabling more trades for SMEs worldwide and delivering investment-grade strategies and products for investors at the same time. The Baltic Exchange's services are highly complementary to our unique non-credit, non-lending, asset-backed approach which relies heavily on the simultaneous and secure exchange of ownership documentation with the payment to the suppliers of commodities we are investing in."
Baltic Exchange chief executive Mark Jackson adds: “The independence and credibility of the Baltic Exchange, backed up with robust processes and infrastructure, allows us to provide an escrow service that supports a wide range of businesses and applications."