Commodities trading revolves around market intelligence. In the relatively recent past, most of the work used to be done by telephone, with traders calling brokers to find out who was doing what and where volumes were moving.
They would have to gather this intelligence, aggregated from a variety of sources — many of which wouldn’t be that reliable or up to date — and assemble it themselves.
When the Bloomberg terminal arrived in late 1982, financial trading took a significant step towards digitalisation. This made some blind spots more visible, especially in the fixed-income and equities markets, and opened quality market intelligence to more organisations.
Today, there are several technologies driving digitalisation in commodities trading. The Internet of Things, for instance, has revolutionised the logistics industry by allowing vehicles of all kinds to be accurately tracked.
New satellite and terrestrial networks can also monitor shipping fleets wherever they are on the planet. Drones can enable us to see what’s going on in locations such as oil tank farms.
The digitalisation of commodities analytics has happened on a piecemeal basis, with some industries going through the process of digital transformation faster than others.
Shipping has typically been slower to innovate. Some companies may still be using fax machines and demanding wet signatures on contracts — I recently saw one shipping business still using stickers on a wall map to show the location of their ships.
However, for tracking market flows, accurate information about where ships are in the world at any moment in time is very important.
For example, if there was congestion in the Panama Canal or Suez Canal that was slowing down the ships transporting dry market materials such as metals to a particular port, then this could have a massive economic impact.
Most forward-looking companies tend to be global companies with large trading portfolios, as well as private equity companies, hedge funds, and investment banks.
They’re keen to test out tracking technologies and adopt platforms that can save them time and provide more revenue, time that they would have spent on gathering data from multiple different sources but can now use to analyse the data instead.
The oil industry has also been quick to digitalise, in comparison to agriculture, metal and mining — largely because it’s a market that is commonly used as a macroeconomic indicator and has such a big influence on financial flows around the world.
Generating more revenue and saving time and money should be an incentive for any organisation considering digital transformation; the return on investment will become apparent very quickly.
Digital transformation in the commodities market is also one of the most effective ways in which we can tackle the key issue of our time — climate change.
The potential to track carbon emissions generated by the trading of commodities is huge. We know how far materials have travelled, in what quantities, and by what method.
Digitalisation also helps us to react to the potentially catastrophic effects of unforeseen events. For instance, the war in Ukraine has meant many countries have had to look for alternative energy supplies due to the embargo on Russian energy.
Food security is also absolutely vital to economic stability on a global level, as Ukraine is one of the world’s top exporters of staple grains. With real-time data about the flow of energy supplies and foodstuffs, governments have been able to find alternative partners to secure supplies from different sources.
Any organisation involved with the flow of commodities needs to constantly assess the efficiency of its processes. They must ask themselves where they can potentially streamline tasks and simplify processes.
It’s also important to assess the tools available for these purposes. They’ll need to consider the data quality and methodology of any platform they integrate into their operation.
They must also do their due diligence on the providers they use so they know what kind of support they’ll get throughout the adoption process and beyond.
Trials and comparing the different solutions available are advisable, but the really ambitious players should be thinking big.
They should consider how the digital platforms and solutions they embrace can increase efficiency throughout the whole business, solving multiple problems at the same time across several departments.
Working with a provider that can listen to their pains and become a partner that can elevate the organisation to a new level rather than just another vendor.
As organisations continue with digital transformation, new technologies will have a big impact on how commodities intelligence is captured and analysed.
Developments in AI can help organisations dealing with commodities to drive efficiencies by automating manual processes: Generative AI tools such as ChatGPT are already being used to great effect in several industries.
Other technological progressions will play a part, too; the commodities industry will gradually see the benefits of having more data available at a higher frequency, for example.
There will be more satellites in space, the satellites will be of better quality, and there will be other ways of capturing the positioning of tankers, too, such as roaming AIS stations.
The key to extracting the full value from the increasing amount of data and the number of datasets available is being able to connect the dots.
Markets don’t operate in silos; what’s happening in the gas market, for example, will be impacted by — and have an impact on — what’s happening in the coal market.
All the markets and global supply chains are dependent not only on the commodities themselves but the shipping as well, so it’s essential to fit all the pieces of the puzzle together.
With a greater understanding of the interconnectedness of all data points and markets, we can see the synergies and get a full picture of how commodities markets relate to each other, and impact on each other.
Having quality intelligence is one thing; being able to carry out effective analysis is quite another.
Therefore, if you have all the information in a single digital platform, the better position you will be in. You’ll have more time for deeper analysis of the data, powered by reliable, up-to-the-minute information.
Read next: How to transform the supply chain with data analytics
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