Background

Inventory that is sitting idle is often viewed as an unproductive resource that will cost money in storage and insurance. There are, however, ways to make inventory work and turn these idle resources into assets. The first step, in order to realise these assets, is to register the ownership with a document of title.

Possessing a document of title legally represents the ownership of the goods that are described within the document. This can come in the form of a warrant, which is issued by the warehouse keeper stating that the goods held in the warehouse are of the specified quantity and will remain so while stored at their facility. This warrant is then listed on a central registry, which means the goods are accounted for and secured against any damage or losses incurred by the warehouse.

The concept of warehouse receipts or warrants has been around a long time. In the US, warehouse receipts have been widely utilised in agricultural trade, particularly in the cotton industry. The warehouses storing the cotton would issue negotiable warehouse receipts showing the weight, storage date and tare of the goods. In the US, a warehouse receipt is a document of title supported by legislation. By contrast, in the UK, a warehouse receipt is a non-negotiable instrument not considered as a document of title. A document of title in their jurisdiction comes in the form of a warehouse warrant issued by warehouses nominated by entities such as the London Metal Exchange. Therefore, the level of security banks feel when lending against warehouse receipts very much depends on the law in the jurisdiction of the country.

The ability to represent the legal title of your goods provides the commodities industry with several trade enabling tools. Firstly, the ability to transfer ownership of the assets to another party without the goods ever leaving the storage facility. The assets can also be used as underlying collateral to secure more favourable financing, as it will significantly reduce risks for the banks, resulting in greater liquidity in the market.

DMCC Tradeflow is Dubai’s solution for this market need.

About

It is universally accepted that there is a desperate need for liquidity in the marketplace but with the ongoing difficulties in measuring risk, banks and financiers are hesitant when considering the release of capital. The lack of regional trade finance vehicles in the market has resulted in a slowdown in intra-regional trade relations, which is naturally a cause of concern as it reflects the inability of regional players to live up to their full potential.

In 2004 DMCC successfully developed and managed the Dubai Commodities Receipt (DCR). The DCR addressed a gap in the regional commodity trade finance industry by allowing storage operators the ability to issue electronic warehouse receipts on behalf of commodity owners with stored goods. The commodity owners could then pledge the receipts in favour of financiers in return for trade finance. Although the concept was already widely used and accepted in many other parts of the world, the DCR was the first warehouse receipt system to be introduced in Dubai and facilitated approximately one billion dollars worth of transactions across commodities such as oil, precious metals, steel, cotton and many agricultural products.

In February 2012, DMCC launched an enhanced version of the GMR system under the new brand name ‘DMCC Tradeflow’. The new platform has been developed with extensive interaction from current members alongside advice from key regional financiers and commodity owners. DMCC Tradeflow brings state-of-the-art security and technology, with increased functionality for users.