Innovation of the year, Asia: Chinsay

Energy Risk Asia Awards 2019: Tech firm pioneers commodity contract risk management platform

Colin Hayward, Chinsay
Colin Hayward, Chinsay

Managing the many and complex contracts that underpin a commodities business is a perennial challenge. A typical international commodity trade operation can include as many as 30 parties, hundreds of people and thousands of emails, all thrashing out complex negotiations that result in a huge amount of information spread across multiple systems.

The winner of this year’s innovation award has harnessed new technology to develop a platform that addresses every step of contract management – not only increasing efficiency, but turning a business cost into a value-generating process. Technology firm Chinsay’s cloud-based Intelligent Contract Platform (ICP) captures, stores and analyses all contract data, enabling all stakeholders to create, review, approve and sign contracts in real time. As well as reducing sign-off time from days to hours, it eliminates the operational risk involved in re-typing data – a typical occurrence in the process of approving and signing commodities contracts.

But more than that, the platform – which was launched in May 2019 – creates trading opportunities. For example, ICP maps contract terms to fundamentals in order to value the contract in real time and to track changes in its value. The increased visibility provides traders with a far better understanding of any embedded optionality in a contract thereby allowing value enhancement. Thanks to the platform’s ability to extract and analyse behavioural and market trends, the contract can become a competitive asset for a trader. By improving visibility across the company, it also creates opportunities for collaboration within an organisation and across the wider industry

“The value of contracts goes far beyond the description of commercial terms, options and governing clauses,” says Colin Hayward, Chinsay’s Singapore-based chief executive. “Traditional systems do not support the extraction of the rich intelligence contained in contracts; manual systems give companies a limited view of risk.”

Building on an existing product designed for the freight market, Chinsay developed ICP specifically for commodities with input from industry leaders. A veteran of some 20 years in the freight industry, it understood better than many tech firms the nuance of the commodities world.

For example, many commodities contracts are non-standard, with the same products being traded on different terms even within the same hour of the same day. They also vary more widely than other asset classes that are naturally more fungible; they must specify physical characteristics including purity and composition, with penalty clauses for delivered product that falls below a certain minimum standard. As such, the ability to track and analyse varied contractual terms with various parties over time creates opportunities for follow-up analysis in terms of profitability, credit risk, delivery risk and source quality.

A good example is iron, where the grade of iron ore from a particular mine may be compared to that of another over time, and trends can be detected for everything from moisture content – which affects the value – to delays in delivery times.

Because we have all this data, which we keep at a very granular level, you are able to compare contractual obligations against real-life performance

Colin Hayward, Chinsay

“Because we have all this data, which we keep at a very granular level, you are able to compare contractual obligations against real-life performance,” Hayward says.

Due to the sheer amount of data gathered across the entire contract process, ICP can also give companies a better understanding of counterparty risk and behaviour, and insights into both successful and unsuccessful trades. This capability allows companies to learn from past trading operations, to better inform future decisions.

For example, it can often be the case that a commodities trader buys from a relatively low-risk entity, and sells to another on different terms. “Tracking that, understanding the differences and understanding what their risk might be by counterparty is [extremely important for a] trader’s job,” notes Hayward.

ICP can also provide the user with a comprehensive view of contract exposures across the entire portfolio. It can find relevant correlations affecting pricing and profitability, look at how clauses have changed from one contract to the next, and analyse counterparty behaviour against other variables, all of which are helpful for risk mapping. The system is searchable by any type of contract term or clause, saving the efforts of experts having to go through documentation manually.

ICP is Chinsay’s first technology to address the digitalisation of contract data, and the platform already has four firms signed up to it so far in Asia. Since then, Chinsay has completed the first fully digitalised trade in partnership with Cargill and Rio Tinto, as well as the first end-to-end paperless trade in iron ore. The parties involved used ICP to collaborate via a single platform, allowing for a complete and uninterrupted transaction flow.

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