Millions of tonnes of commodities move through warehouses, ports, and storage facilities every day – copper waiting to be shipped, coffee beans in transit, grain sitting in silos. But who’s actually checking what’s there? And how do you know it hasn’t been damaged, stolen, or claimed twice over?

These aren’t just theoretical questions. Without proper oversight, commodities can disappear, deteriorate, or get tangled in disputes that cost businesses millions. Collateral management solves this problem through independent verification, regular monitoring, and controlled processes that protect everyone involved, from the farmers and producers who grow the goods, to the traders who move them, the banks that finance the deals, and the warehouses that store them.

Different goods face different risks: bulk agricultural products can spoil or be substituted; high-value metals are at risk of double-pledging; soft commodities like cocoa or sugar can swing sharply in price.

Collateral management aims to minimise, if not avoid, these risks through strategies and tools such as due diligence on counterparties and sites; warehouse inspection and improvement recommendations; intake verification (quantity, condition, quality); ongoing stock checks and reconciliation; structured reporting; and a controlled release process. When this structure is robust, any discrepancies are detected immediately – and can be addressed promptly – rather than becoming unrecoverable surprises further down the line.

Two common structures: CMA vs SMA

There are two main types of collateral management arrangement: Collateral Management Agreement (CMA) is where the collateral manager (as an independent third party) takes custody/control over the commodity and oversees its release. This is high level of assurance and intervention is especially valuable in jurisdictions which face elevated fraud risks.

In contrast, a Stock Monitoring Agreement (SMA) sees the owner retain custody and liability, while the collateral manager verifies positions, movements, and controls through reporting and checks. This is lower-cost, but provides less direct control. A useful way to frame it: SMA increases visibility; CMA increases enforceable control.

How does collateral management benefit different stakeholders?

For banks, funds, and trade finance providers, collateral management turns physical inventory into financeable security by eliminating the unknowns around commodities.

Independent verification and control reduce risks such as non-existent stock, duplicated documentation, unauthorised releases, and unclear title. When these risks are addressed through credible third-party oversight, the financial impact is tangible: lenders can offer higher advance rates, approve transactions more quickly, and price risk more efficiently.

Just as importantly, independent reporting and documented control materially improve recovery prospects if an issue arises. The lessons from real-life incidents are instructive. In one high-profile case, duplicated and fraudulent warehouse receipts allowed the same copper and aluminium cargoes to be pledged multiple times, leading to substantial losses and a sharp contraction in commodity finance appetite.

For traders and merchandisers, the value of collateral management goes beyond risk protection into commercial growth. Verified stock positions and controlled release mechanisms make it easier to access stable credit lines across volatile price cycles. At the operational level, collateral management reduces daily friction by establishing clear rules and an auditable evidence trail. Disputes over shrinkage, timing, or responsibility are less likely when controls and reporting are agreed upfront. This is especially important in situations involving substitution or contamination risk during loading or storage, where quality claims, cargo rejections, and reputational damage can impact margins. Structured verification and release controls help ensure that problems are detected (or avoided) early, rather than surfacing later, when the damage may already have been done.

The benefits of collateral management extend further upstream to producers, farmers, and suppliers, too. Yield uncertainty, perishability, and narrow sales windows all increase pressure to monetise products quickly, even if market conditions are unfavourable. Collateral management supports these stakeholders by strengthening their credibility with lenders and buyers through independent verification and ongoing monitoring. This can make it easier to access funding and provides greater flexibility to hold on to commodities until market conditions improve, rather than being forced into immediate cash sales.

Warehouse operators and logistics providers also benefit from the professionalisation and assurance that collateral management brings to day-to-day operations. Formalised access controls, measured and reconciled movements, incident reporting, calibrated measurement methods, and clearly defined liability boundaries raise operating standards across facilities. While these requirements can initially feel demanding, they ultimately reduce ambiguity and reputational exposure.

Across all stakeholder groups, collateral management improves trust through the use of independent oversight of commodities. It improves transparency through regular reconciliations and auditable controls. And it improves liquidity by making collateral credible and secure, and financiers more willing to lend.

Rapidly developing collateral management technology such as sensors, drones/LiDAR, and remote monitoring add further layers of assurance, accuracy, and reliability in increasingly complex regulatory environments. Ultimately, collateral management turns physical inventory into bankable, auditable security, strengthening trust, transparency and liquidity across the commodities supply chain.