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Citi has successfully trialled a blockchain solution with Maersk to streamline bank guarantees for vessel transit fees, as part of a digital asset service unveiled by the bank during Sibos.

The pilot used the programmable transfer of tokenised deposits through smart contracts to provide instant payment by the shipping giant to a canal authority, expediting the traditionally cumbersome bank guarantee process and reducing transaction processing times from “days to minutes”, Citi says.

While the bank declined to name the canal authority that took part in the pilot, the solution is being announced in the wake of drought-induced capacity reductions at the Panama Canal, which have led to significant bottlenecks – and increased competition among carriers for slots to cross the vital waterway.

An unusually long dry season this year has forced the Panama Canal Authority to impose transit and draft restrictions on the waterway, which depends on rainwater to move vessels through locks connecting the Atlantic and Pacific Oceans. The resultant logjam of queueing ships has sparked fierce bidding for auctioned slots, which give shipowners the opportunity to jump the queue.

With time of the essence, any delay in obtaining a bank guarantee to cover passage fees – which must be paid in advance – could see a ship losing its slot.

Speaking to GTR at the Sibos event in Toronto this week, Valeria Sica, global trade data, partnerships and innovation head at Citi, says: “When you think about this specific use case, the ships need to move 24/7; they can’t wait until the bank is open to issue that guarantee.”

“We are converting client deposits to tokens that support a smart contract. When the conditions of the smart contract are met, those tokens go from one account to the other. For now, this is designed for very specific use cases, where guarantees are used as a payment mechanism.”

In a statement, Marie-Laure Martin, Maersk’s regional treasury manager for the Americas, says the technology used in the pilot has “promising applications for trade finance”. Beyond the bank guarantee process, Citi says it could also be leveraged to serve the same purpose as letters of credit in the trade finance ecosystem.

“The idea is to create solutions that really help our clients accelerate their own business,” Sica tells GTR. “The market is not necessarily ready for tokens, so when we designed the solution, we thought very deeply about what would make sense for clients and how we could design it in a way that would truly trigger adoption.”

The pilot is part of Citi’s new digital assets offering, which it launched at Sibos. Citi Token Services integrates tokenised deposits and smart contracts into the bank’s global network, with use cases including continuous cross-border payments and liquidity management, as well as automated trade finance solutions. Because the tokens are processed on private permissioned blockchain rails that are owned and managed by Citi, clients do not need to host their own blockchain node to access the services.

“Digital asset technologies have the potential to upgrade the regulated financial system by applying new technologies to existing legal instruments and well-established regulatory frameworks,” says Shahmir Khaliq, Citi’s global head of services. “The development of Citi Token Services is part of our journey to deliver real-time, always-on, next-generation transaction banking services to our institutional clients.”