The cost of bad data and why VAKT is working to improve this
Wednesday, June 2, 2021
The business of trading oil has and always will be at its heart a logistics business. Capturing value in space and time requires a market analysis team to identify an opportunity, a trader to agree and take responsibility for the trade, and then a team of operators to turn the plan into a profit. Ensuring a team of operators can spend as much time as possible with trading, protecting and improving deal value, therefore has a meaningful effect on a P & L.
Over the past 10 years a new force has influenced the fortunes of the market: data. No longer the preserve of the largest traders with the deepest pockets, accurate ‘alternative’ data has allowed new entrants to gain market share. The net effect of this democratisation of data has been a thinning of margins across the industry and a greater interest in optimising workflows; squeezing maximum value from a trading organisation for shareholders.
As data has been a boon to many, it also requires expenditure to correctly manage. Like physical oil, the correct data in the correct place, at the correct time, delivers great value and therefore costly infrastructure, often on the cloud, has built up over time to ensure this. This is the preserve of the ‘data engineers’.
Most oil traders exist in a love/ hate relationship with their trade capture software (ETRM: Energy Trading & Risk Management), large software systems with years’ long deployments and multimillion-dollar price tags. These software systems promise accurate data in the right place but all too often this is not the case. For transactions in physical commodities, since these systems are inputted to by humans, errors naturally occur, and these errors can change the value of a trade. If a decimal point is incorrectly placed, a trade value misheard or a button accidentally pressed, when it comes to settlement or demurrage a trader could be looking at a large inaccuracy in their favour or against them. The fact that many traders admit (off the record!) to profiting from these mistakes illustrates the cost of being on the wrong side of such an error, and that companies lose large sums to this practice. At the very least, invoice and demurrage disputes lengthen the time between invoice issuance and payment.
Naturally, checks are in place to avoid these outcomes in the form of middle-office, back-office, and contracts teams. However, this is an inefficient remedy to a simple problem (data entry errors) that can be solved with automation.
The choice is clear: prevent inaccurate data being entered into the ETRM (inexpensive) or maintain large teams of people to correct the data down the line (expensive).
At VAKT we believe the answer is obvious: don’t allow inaccurate data to propagate through your company. Our vSure solution speeds up the payment cycle, stops our customers losing money to inaccurately settled trades, and to deploying large groups of skilled staff to check invoices, identify errors, find the reason for the errors and coordinate the correction of a trade or the resolution of a dispute.
By connecting to the ETRM of two counterparties and identifying the same trade across two separate systems, vSure identifies at T0 whether the ETRMs of the buyer and the seller contain matching trade records or if there are discrepancies between the two. If there are, this discrepancy can be easily corrected in the ETRM minutes after a trade is agreed, removing the risk of incorrect mark-to-market, hedging, invoices, or disputes in demurrage. Our API contains over 300 available fields, including those relating to demurrage terms and GT & Cs. That is a great deal of data that can be compared automatically, instantly.
The benefits of vSure goes beyond internal data management and systems. By creating a ‘single source of truth’ about a trade, many third-party companies which service a trade between agreement and payment are benefitting from clean data, the elimination of fraud and the reduction of paper trade documents. Data accuracy and validation benefit all ecosystem participants, the trading parties but also the financing bank, the terminal, the shipowner, the inspection company and the agent.