Welcome to the Rapaport Diamond Podcast. And now your host, Avi Krawitz.

Avi: Hello, everyone. Welcome to another episode of the Rapaport Diamond Podcast. I’m Avi Krawitz, and today’s guest is Frederik Degryse, who is the CEO of iTraceiT. ITraceiT is a company which is barely a year old, but it’s tackling the important issue of Traceability across the diamond supply chain. We discuss the company’s approach, the challenges it faces, and some of the forces and trends shaping the discussion about source verification. This is a hot topic in the diamond industry at the moment, and I gained a lot of insight from our chat – I’m sure you will, too. So please enjoy my conversation with Frederik Degryse. 

Avi: Hi, Frederik. It’s so great to see you again. Welcome to the podcast, your debut on the Rapaport Diamond Podcast. So welcome and how are you doing?

Frederik: Thank you, Avi, of course, it’s always great to talk to you. I’m a big fan of the podcast ever since its first episode and I’m an avid listener. Happy to be here, and everything’s going very well. How are you? 

Avi: Good. Excellent. We’ve kind of followed each other’s journey in the industry from afar. You started off in the mining sector with Dominion Diamond Corporation, then moved into the midstream with UNI diamonds, and now you’ve taken on a new role. It’s just over a year now that iTraceiT has been in development.

Frederik: Yes correct. It’s been super interesting. The industry has definitely been really kind to me, and it’s been really interesting to have been looking at the sector in the diamond pipeline from all these various angles and being able to see how it operates and works from the rough side, the polished side, and now from the technology side. So that’s been really interesting to see how all of those elements and things fit together.

Avi: Right, we’ll get into iTraceiT, and the traceability solution that it’s providing and its mechanics.  But I would imagine your background fits into all that. Just for interest’s sake, what was your background before coming into the industry? You’re Antwerp based, right?

Frederik : I am, indeed, Antwerp based, born and raised. I was studying at the Antwerp Management School, a general management course, and as the final consulting effort that we had to do to get our final grade, I had an opportunity to work with the Diamond and Jewelry Management Institute, which was a combination of various entities from the Antwerp Diamond Sector to help out with a couple of studies on how Antwerp could position itself to attract more consumers, attract more rough, attract more polished. And that was my entry in the market, where I was responsible for facilitating what they would call at that point, the Project 2020, which was the strategic repositioning project for the Antwerp diamond sector exactly. 

Avi:I do remember that. I didn’t know that about you. And it always amazes me how Antwerp is so diamond centric, even the universities, as you’re alluding to, have this sort of connection to the industry and give opportunities to the locals to get involved. And that question of Antwerp’s position in the industry and the opportunity for growth and where that growth could come from, that’s a whole separate podcast, I think.

Frederik : Yes, exactly. You should have me on for a second time. Happy to go through that.

Avi : Well, if you claim to be a spokesperson for the Antwerp industry, that’s fine.

Frederik : No, I wouldn’t go as far, but it’s definitely been very interesting as an entry into the market.

Avi : Well, I was thinking about the role of iTraceiT, and in terms of the timing, it’s been very interesting. And you could almost accuse you of being opportunistic given the timing that the company was basically announced around, I think, it was September 2021. And then the official launch was in May last year, which was shortly after the Russia-Ukraine conflict came to our attention. And that conflict really brought traceability and responsible sourcing and source verification front and center in the industry. And then suddenly we had a few announcements at the time about these origin programs, but one of them was the launch of iTraceiT. So maybe you want to give us a bit of background into what was driving the development of the company even prior to the Russian conflict that sort of spurred this topic in the industry.

Frederik : Great point and great question. When we’re talking about traceability in the diamond sector, I think it’s been an evolution that started several years ago. And it’s been mainly the luxury brands that have been the primary driver to this. And it was really also coming directly from their demand that we came up with the iTraceiT solution. Because at that moment in time, there wasn’t any industry-wide traceability solution, especially nothing for diamonds of all sizes. When we’re looking at the traceability solutions that are out there or the traceability landscape today, there’s a lot of great initiatives and a lot of great solutions, as you mentioned. But what we found is, and at least it’s also the feedback from some of the retailers that we spoke to, is that it tended to be quite fragmented, whereas they would either focus on a particular source or a particular producing origin, or they would focus on a particular product category, so a certain size or quality upwards. But there wasn’t really any solution for smaller goods, for commercial goods, which really make up the bulk of the market. So there wasn’t one industry wide solution for all diamonds.

And I think that’s really the issue we wanted to provide a solution for. We want to be that industry wide solution, an independent solution for the diamonds of all sizes and all the components that go into the jewelry pieces. So I think that’s where the demand was coming from and that’s how we position our company. Just maybe important to add as far as the timing which you alluded to which I understand that looks a bit odd. ITraceiT’s development was already busy for several years, so we had quite an extensive pilot period of over a year, with various partners at all the different stages of the pipeline leading up to our launch. But it’s definitely true that the geopolitical climate also spurred some of these developments forward.

Avi : It sounds like an accusation, but it’s not really. You make a few points there that I would like to touch on and I’d particularly like to get back to how one goes about solving the challenge of tracing smaller goods which are generally sort of mixed from various sources and sold in parcels. But we will get back to that. I do want to make the point that of course the traceability issue is not a new phenomenon for the industry. It’s been a hot topic in our news feed for a number of years already. And I think the discussion has kind of evolved. Initially it was: We’ve got this technology or these platforms and blockchain. Blockchain was a buzzword and the focus was on that blockchain solution. Whereas I think it’s evolved now to be sort of bespoke and generally it’s not necessarily about being a blockchain program, which I understand that iTraceiT is using that technology, among others and you can explain that to us. But it’s more about the storytelling and how the technology is enabling those brands, as you mentioned, to tell their story and give the assurances that are needed to enjoy confidence in the product.

Frederik: Yes definitely, you’re absolutely right. I think as far as the blockchain element is concerned, it is indeed an important aspect of our solution and we can get into how that actually works and how we tackle the blockchain issue and how it fits within our iTraceiT solution. But I agree with you that the focus has shifted a bit towards broader storytelling, especially when it comes to traceability. I would say, and I’d love to hear if that’s also a similar trend that you see in the industry, but at least from the retailers or the partners that we speak to on a daily basis, we’re starting to feel the shift that originally it was all about the country of origin and being able to declare the country from which the original rough came. But what we’re seeing now is that in addition to that, a lot of retailers tend to become more and more interested in the full journey of the product, where it’s not just the country of origin, but the full journey of that product. What are the different stages in the pipeline that those goods have traveled through?

Because we’re starting to see a shift towards the broader sustainability story where brands and retailers need to be able to show to their customers that those goods have been responsibly sourced. And that of course means that they’ve taken into account environmental impact and social impacts at all the various stages of the journey. In order to make that claim it starts with transparency and it starts with knowing exactly where those goods have been before you can start making any broader sustainability claims and I would say that’s a shift that we’ve seen from our side. Is that something that you also see?

Avi : Yes, it’s interesting to hear you bring that up. I think it is true although it’s something that we’ve noticed certainly in terms of the focus of telling that story and it has shifted to a broader sustainability challenge or focal point is a better word, but I think the challenge remains at the rough source. It seems that is where it becomes the most difficult point in the supply chain and the journey of the diamond to trace the origin and if you have that starting point. Then it makes it easier to trace the diamond through the rest of the distribution chain. And also, I think that’s arguably still the biggest area of concern when it comes to various aspects that affect the issue of responsible sourcing, both in terms of the geopolitical influence or conditions under which that diamond was mined. And also in terms of issues such as sustainability and of environmental concerns and even the contribution that a mine can have on its communities and maybe more amplified, that’s a focal point.

Frederik: Absolutely. And I can tell you that having worked at a mining company, one of our challenges was always: well, there’s so many great things that the company does at the mine site for the local communities, to limit the environmental impact and also go above and beyond that and actually contribute positively to the environment. So there were all of these great stories and the challenge was often how do you get those stories to the end consumer and I think iTraceiT can also play a role there whereby all of those story components can be added to the product as it moves along the supply chain and reaches the retailer, who then in turn can tell that wonderful story.

Avi : Why don’t you give us a bit of the technical aspect of iTraceiT and how it’s differentiated from other programs because firstly it’s becoming a bit of a crowded space. There are a lot of established companies within the industry and also companies that have a broader reach and maybe are focusing their systems as a byproduct of that bigger story that needs to be told. Companies such as De Beers, GIA, Sarine come to mind where they touch various points in the industry that they’re able to amplify the story that’s being told and then use their technology to back that up. Whereas you’re essentially a service provider in this area. And so how do you fit into the market and what is sort of the added value that iTraceiT brings to that space?

Frederik : I would say that actually, the fact that we are not an established company and do not indeed contribute to those touch points in the diamond pipeline could also be turned into a strength. I think we’re in a unique position by being an independent company who doesn’t have any major diamond organizations in their shareholder structure, whether it’s any industry organization, a mining company, sightholder, doesn’t matter. 

And by being an independent technology and service provider, it also puts us in a unique position to be an industry-wide solution. I think what also sets us apart is that we want to be a solution for all diamonds. So it’s not just the big and valuable stones, but it’s also the more commercial goods and the melee. We want to be a solution for all diamonds and really any other material that can be traced into the final jewelry piece. In our conversations with retailers, what they would ideally love to offer to the customer is one report that details the traceability information not just from the big center stone in the ring, but also the melee to the side, the gold that goes into the piece or really any other material that goes into a watch or any other jewelry piece.

And the fact that they can use iTraceiT to track and trace all of these different components and fit it into a final report for a product is a tremendous value add. As far as the technology is concerned. It’s a combination of blockchain and QR code technology. The blockchain element is a very important one because the decentralized character of blockchain has a lot of positive security implications. But more importantly, it means that the information which is on the blockchain cannot be altered and is there forever, which of course adds a lot of credibility to the retailer. And then the QR code part is actually very interesting because the reason why we chose for QR code technology is because it has a couple of really interesting benefits. First of all, when you create a QR code, it automatically tracks where was it created, by whom was it created, when was it created. And you can also add whatever data points and documents you want to it. So think about certificates, KP certificates, copies of rough invoices, pictures, videos, planning files. Anything and everything can be added to that QR.

So it effectively becomes like a digital identity card of the stone or the parcel of melee or any other product that it accompanies. And the way that we work with those QR codes is that at every stage of the diamond pipeline and even within a company – so think about a manufacturer who wants to track his diamonds throughout the various stages of manufacturing – our system is automatically going to attribute QR codes to each stage and then automatically connect all of those together. So you create an unbreakable chain from the beginning to the end. So at the end of the whole exercise, the retailer can scan the QR of the goods that they receive and see the full traceability chain with all the supporting data points and all the supporting documents for each code.

Avi : And those QR codes feed into the blockchain, correct?

Frederik : Yes, into the blockchain.

Avi : Okay, so that makes a lot of sense. And so are you working with mining companies to get that first touch point of the rough, and then you’re able to sort of attach a QR code to that at the mining point, or is it from the manufacturer? Obviously, there’s a process of building and developing a company and having more companies work with you. But at what stage are you at the moment? I know that you recently put out a press release that illustrated a number of sightholders that are working with you, but is it going beyond that, particularly to that mining source?

Frederik : Absolutely. I think when we’re looking at Traceability, the approach we wanted to take is that we understood very early on, you’re not from day one to day two going to have the full diamond industry adopt one specific solution. I think that’s a little bit of a pipe dream in our sector. Of course, we hope to get there at some point, but when we conducted our pilot, we did work indeed with partners at various stages of the pipeline, including several mining companies. That said, we believe at iTraceiT, that traceability can start at any point. And it’s all about being transparent with what information you have and what you don’t know. In an ideal case  it starts as you said, with a mining company who puts the QR sticker enters the parcel in the system, and it goes from there, and then the manufacturer can pick up from there, and continue on. But it could just as well be the case that if you’re a manufacturer and you receive a DTC box or a box from any other mining company, that you start the traceability journey because you have a copy of the rough invoice, you can add pictures and film the parcel.

You can add whatever details that, in the end, the retailer is looking for and start the traceability journey from there. Likewise, if you’re a polished trader, you could also say, well, you know, what? I bought these goods from my supplier. I will get them to fill in a declaration of origin document. That is my proof. Of course, it’s not as strong as it’s coming straight from the mining company, but it’s at least the transparency of showing what proof you have to the retailer and then we leave it up to the market – it’s up to the retailer to decide what information they’re looking for.

Avi: There’s always sort of a red flag that goes up in my head when there are claims about being an industry wide platform. I think De Beers with Tracr realized this at some point. It’s not about providing one platform for the whole industry, but what you’re saying is that it is suitable for all of the industry to use.

Frederik : Absolutely. And I would even add to that. I think it’s important to note that from the start of the company, we’ve always taken an extremely collaborative approach. I think if you really want to be an industry wide solution, that also means working together with all of the different players that take part in that. So we’ve built our system to be so flexible that we hope to be able to tie into the platform that you mentioned with the producer that you mentioned on one end and you can also tie into a blockchain consortium which is developed at the retail end. We are definitely open to working with other traceability solutions. We want to be that connector and that bridge between all of the different solutions that are out there. Because in order to be an industry wide solution, I think you have to work with all the different actors, which is why we’re now also exploring working together with some of the leading logistics providers and grading labs to make sure that all of the different components play their part in establishing that story and that journey of those goods.

Avi: Right. And I don’t think that’s necessarily required for the industry. But I think it’s certainly for the companies who are trying to show the journey of their diamond where if they can tap into the different programs that are out there with the greatest efficiency possible, I think that would be very helpful because I think there are a lot of concerns, particularly for the smaller companies in the industry, that there’s a cost involved, there is a logistical element to it that might seem a bit overwhelming. And so it seems almost sort of inaccessible for some of the more independent players, both among the dealers, manufacturers and I think the retailers as well.

Frederik: Yes, definitely. When we developed the iTraceiT solution from the beginning, our goal was that it needs to indeed be a super efficient solution, that it doesn’t add time during any of the processes, whether it’s during manufacturing or during sorting, because if it does, then people just won’t do it. Or if there’s a high cost associated with any of the steps then nobody will do it. So that’s why we made our solution fully digital and we also invested very heavily and put a lot of development work into creating automations, whether it’s with companies’ own proprietary inventory management systems or whether they’re using one of the industry leading ERP providers. Because when those automations are there, it just makes it so much easier. And then also, as you said, for smaller companies, even those that just work off in Excel or just want to manually enter information, that’s also possible. We try to be as flexible to suit each customer’s needs.

Avi : Right. And I think one of the outcomes of this, and I’m still in two minds whether it’s a good or a bad thing, I think ultimately it would be positive, but it might be to the detriment of some of those companies that don’t have the infrastructure or budget to adopt traceability programs. There could ultimately be a bifurcation of the market between those companies driven by the brands, as you mentioned earlier, that are supplying the brands, applying to the bigger retailers who are showing the Traceability story. And so a split in the market between those companies that are in that pipeline and those that are not. And then again the question if the cost and the brand equity that’s involved in showing the Traceability leads to the premium on the goods that are part of the verified supply chain,

Frederik : I would love to add to this. I think right now you can see traceability as a competitive advantage. It’s something that can differentiate your goods and get you perhaps access to more demands or when the price is the same, it can make your product more interesting than another. So I’d say right now it’s that commercial differentiator. But in the conversion that we’ve been having with our brand partners for example, they’ve made it very clear that in a time span of only a few years we’re going to get to a situation where it’s going to be mandatory for all of their production. We have a lot of brands that have very ambitious goals to in a couple of years make all of their production 100% traceable, including all the small goods, so that’s of course a huge challenge for them and for their suppliers to adhere to. It’s going to be a necessity in order to continue to supply to them. And as we know with most of these industry trends, they tend to start on the catwalk in Paris and then they trickle down to the chains and the independents from there.

And I would say recently – and I don’t know if you’re seeing the same thing – that similar thought stream has also started to come up in the US market where we’re seeing a lot more of medium size chains and the better end independents also pick up on this and making traceability a need to supply to them. So it’s definitely the way that the industry is going right now. It’s a differentiator, but I think in a couple of years it will be mandatory.

Avi : Yeah, I agree. And we are seeing that same trend among the medium to larger size independents in the United States. And I do think that was a result of the geopolitical developments of last year and jewelers are very sensitive to that at the moment and concerned about the legalities of their supply as well. I would like to just go back to the smaller goods because we haven’t touched on that and that’s always been a very particular challenge for providers of traceability. How do you tackle the issue of the smaller goods, the melee that is sold in parcels and often mixed at various points of the distribution chain and so iTraceiT is claiming that you’ve overcome that challenge. So I would like to give you the opportunity to explain how that is working and how you’ve approached the melee dilemma.

Frederik : I think you aptly put it, it is very much a dilemma. Because in the case of melee, I think, as we all know, and I did this process when I was heading the CanadaMark program at Dominion, we were thinking, okay, well, how can we make sure that the melee coming from a rough source stays 100% separated from other rough sources. So we had quite extensive audit protocols and every manufacturer had to have a separate part of their factory just for a particular origin to just make sure that goods were not able to be mixed. And it was a very tedious process and not at all scalable for most big manufacturers to be able to, for every origin, set aside a separate part in their factory and to keep everything separate because of course, at a certain point those goods get mixed together anyway. 

So knowing that especially for melee, there’s no commercially viable scientific solution to be able to pick up one melee polished stone and be able to say this is coming 100% from this origin, our system does allow the full traceability of the parcel movements. And what I mean with that is that all of those stages in the supply chain across companies, but also within a company when they are mixed or split throughout the various processes, our system keeps full track of that, so that at the end of the exercise, when you are left with a parcel of polished melee, you’ll be able to say, well, you know what? I won’t be able to pick up 1 stone here and say it’s 100% Canadian, but I will be able to say that in this parcel there is 30% Canadian, 50% is from DTC, some is from the market. It’s all about being transparent with those origins. And we found that with most of the customers that we work with, that’s really what they’re interested in. They’re not necessarily so interested in being able to pick up that one melee stone and be able to say this is Canadian. But they want to know that there are no Russian goods in there. There are no Zimbabwe goods in there and maybe for some it’s a different source. It’s about being able to see what is in the composition of my melee parcel and which are perhaps certain origins that I don’t want so I can make my sustainability claims.

And as far as the way that we ensure that the goods are exactly what we say they are, we have a bunch of different security layers to make sure that the information is valid. The first layer are the easy ones, which are all the numerical checks, where of course, if our system picks up that you’re splitting more carats out of rough parcels, than there are  carats in the rough parcel, then of course you’re going to get red flags. Secondly, because we’ve built these automated systems, the information is automatically going to come from the customer’s inventory management system so there’s no danger of manual errors. It’s taken automatically from their complete system so all the goods are accounted for, which of course, makes it much easier for an auditor to come in later as well. In addition to that, because the information is on the blockchain, there’s a level of accountability because the information is there forever. And if any issue arises, it can be quite easy to bring it back to the original culprit. And then we want to work together with some of the industry’s other actors who can provide independent third party verification.

So as I mentioned earlier, we are piloting now with several logistics companies and with grading labs. So when goods are sent for synthetic screening or they get sent for certification or if a shipment was done with a particular logistics provider, they are actually verifying that those movements happened and that information gets feeded immediately into iTraceiT. So it adds additional credibility to the story.

Avi : It’s certainly a complex challenge and it sounds to me that it’s not an exact science. As you said, you can’t account for each individual stone in a parcel of melee, but giving that assurance that through you, through the transparency of the declaration, the buyer would have certain amounts of confidence at least that the parcel is made up of goods from origins that are acceptable to them.

Frederik : Well, definitely. And you have to keep in mind the original situation from which we’re coming, where most retailers would have to rely on origin which is put on the invoice by their supplier. Which was, of course, purely declarative. I think right now we’re getting to a system where all of the steps before their supplier are also being captured and all of the information, the data points, as I said, pictures of the rough copies of the invoices, anything and everything can be added in. So that is already much stronger than what it was in the past.

Avi: Okay. And you mentioned that the information is included in a report, so iTraceiT is issuing a report or declaration that would go with the invoice along the supply chain.

Avi : Yes. So basically, all of the goods that go through iTraceiT get an assigned QR code with all the information which is taken at all the various steps. So when a retailer would receive a parcel from their supplier, they basically scan the QR code and get all of the information. Now, this information is very detailed because it contains all the data points. It’s very granular because it has all the documents inside. So for some retailers, that tends to be information overkill. And we needed to make sure that we have a solution that is tailored to the different tastes. Now, brands love this level of granularity, but maybe an independent somewhere in Australia might just want to know a country of origin and the journey that those goods have traveled through. Which is why we indeed developed this report, which just contains two basic elements, what is country of origin, in the case of melee, a percentage distribution. But of course, in the case of a single stone, it’s always one single origin. And then the countries at every stage of the pipeline through which the goods travel, which are automatically taken by us.

Avi : I see. And that’s for the diamond supply. But I also understand you are in the process of developing a jewelry report which would include the journey of gold and colored gemstones. And so is that the next stage of your development? And those segments also provide new challenges, I would imagine.

Frederik : Yes, you are 100% correct. This is indeed one of the next expansion plans or one of the next goals that we’ve set out for the team. Coming from the direct question of brands who then want to continue the traceability of diamonds into a jewelry piece, which also means that we have to be able to trace all of the components that go into the jewelry piece. So 2023 is the year for our expansion  into other product categories that make up the jewelry piece. And you’re absolutely right. Each sector kind of comes with its own challenges. And it’s very important to capture all of those different nuances because we don’t believe that we can force each sector into particular molds and we need to be aware of each’s nuances. Take for example, the gemstone sector, I mean, from the conversations that we’ve had, and I’d love to hear if you agree with this, but at least on the production side, it tends to be slightly more, I would say, artisanal than perhaps the diamond sector. And that, of course, comes with its own challenges. How do you introduce a technological concept such as ours into a very artisanal environment?

So there’s a challenge there. The gold is a challenge on its own. It’s a much more streamlined supply chain, but then again, a more homogeneous product, so the differentiation is sometimes a bit more difficult. So there’s challenges there. Each sector for sure has its own challenges, but we have some great partners in each, and I’m sure we’ll get to introduce all of them.

Avi : Must be such interesting work, I think particularly on the gemstones I’m learning about at the moment in a personal capacity, that one aspect that makes it a bit easier is that the source of origin is embedded in the stone as well. So you can most times tell a Colombian emerald from a Zambian emerald. But there’s also the issue of treatments, which is more common in the gemstones. But it’s a minefield. Excuse the pun, but it’s certainly interesting work and something that we’re watching with interest on the side. So, Frederik, I don’t know if there’s anything else you want to add, any sort of closing remarks about your impressions on the industry?

Frederik: Great question. I mean, there are so many impressions that I’ve garnered over the last few years. I would say that the feedback so far from the industry has been incredibly encouraging. I know it’s very difficult to get the noses from all the different actors in the same direction, but I do feel that this has been one of the easiest products to sell. And coming from a rough background, that’s saying a lot. It’s been one of the easiest products to sell in that everybody understands that that kind of traceability wave is coming. And to that end, everybody sees that the industry is going a certain way. Everybody’s looking for a solution, and the responses have been great, which is lovely to see from all my friends at all the various stages of the sector. So I think those are some good closing comments.

Avi: Absolutely. And it is going to be one of the big trends of 2023 in terms of our editorial coverage. The question of traceability, sustainability, responsible sourcing is front and center, as it was last year, I think. So watch the space, everyone. Frederik, it’s been great to talk to you.

Frederik : Likewise, Avi, it was my pleasure. Thank you.

Avi : And I’m really happy that we had a chance to get you on the podcast. And we’ll catch up again soon, I hope,

Frederik: For sure.

Avi: So thank you, Frederik, and thank you, everyone, for listening and we’ll see you next time.