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Blockchain for Shipping & Logistics

Introduction

Blockchain is what the tide of technology has brought in, this time around. Deloitte tweeted recently that “By 2025, ~10% of global GDP will be stored on #Blockchain.” Organizations can ignore this technology at their own peril. It can be difficult for one to get traction on what this technology is or does. This write-up seeks to explain the Blockchain in 5 FAQ’s. So here goes…

In an ideal world, two people entering into a transaction could shake hands and say “Dictum Meum Pactum” (Latin for "My word is my bond") and that would be the end of it. Alas, the real world operates differently. Discrepancies and misunderstandings can occur about the information related to the value and terms of the transaction. This leads to conflict which is bad for business. In some cases, this problem was partially solved using a 3rd party intermediary (the government, institutions, etc.) which recorded the transaction in their ledger. If the value of the transaction was say $100, the intermediary would keep, say, $2, for their services. Over periods of time, these intermediaries and the steps for maintaining checks and balances build up. This can lead to processes that may move at the speed of treacle. Enterprise systems, the internet and the cloud have made life easier. And now there’s a new superhero in town - the Blockchain.

 1.     What is a Blockchain?

 The Blockchain is a technology that allows two parties to enter into a transaction without needing an intermediary. A ‘block’ is simply a set of verified and time-stamped transactions called blocks. These blocks are then ‘chained’ to each other chronologically using cryptography. This is the Blockchain. The Blockchain is thus a ledger of entries that is stored in a decentralized manner on thousands or millions of computers which are a part of the network. For this reason, one can’t alter any of the past data because one would have to make the change simultaneously on all the computers.

 2.     Where & how can it be used?

Blockchain technology has the ability to make almost every industry in ways that are big and small. We shall narrow the spotlight to the Shipping & Supply Chain industry. Some of the areas in the shipping industry where Blockchain can be used are –

• Document management – The billions of documents exchanged by different parties (companies, departments, government agencies etc.) during shipments can gradually be reduced.

• Traceability management – Traceability is very important in the pharmaceutical and food/beverage industry. Blockchains can make backward and forward traceability possible.

• Asset Lifecycle Management - The entire history of an asset (vessels, pallets, trailers, containers etc.) can be captured including MRO activities, traceability of parts and so on. This is useful during the sale or purchase of the asset. In conjunction with other technology, the assets can also be tracked.

• Financial and non-financial transactions – Any transaction that occurs between two parties (payments, tenders, rate quotes & comparisons, inventory cycle counts etc.) can be on the Blockchain. 

 3.     What are the benefits of using the Blockchain?

 The main benefits are –

• Accuracy and Real time processing – The Blockchain integrated with cloud-based enterprise systems will provide information reliably & seamlessly and as it happens. Another application of the Blockchain is to have a trigger event which in turn can effect a payout or move the process forward. This is termed as a ‘smart contract’.

• Transparency – There is transparency related to the transactions which can be viewed by clients, intermediaries and stake-holders provided one has the credentials. This acts as a report card for the participants in the supply and value chain.

• Security - The encryption of information ensures water-tight security. The inherent structure of the Blockchain makes it verifiable, durable and immutable making it difficult for committing fraud.

• Cost savings – There are huge savings due to reduction of paperwork, personnel and time required to perform the same process. The increase in technology costs will thus be more than offset by the savings.

• Punctuality – It is believed that the Blockchain may reduce the unpredictability of delivery of shipments. Predictable lead-times will led to efficiencies in planning at customer and manufacturers end. 

 4.     What are the risks of adopting the technology?

 The main risks are –

• Companies adopting the Blockchain will need to work on integrating the technology with their legacy systems, rewiring their processes and training staff on the new processes Organizations will have to beef up their IT departments to include professionals who are well versed with the Blockchain technology.

• Any new technology has its early adopters as well as criminals who seek to exploit the technology for their nefarious reasons. As the cyber currency market has witnessed, cybercriminals are ever present to exploit loopholes. The damage to the organization and the supply chain can be fatal.

 5.     Who are some of the players in the shipping industry?

Some of the biggest names in the Supply Chain industry have either formed consortiums (Blockchain in Transport Alliance) or have tied up with IT or consulting giants to complement their competencies (Maersk / IBM or Maersk/Microsoft/EY). There have also been a slew of new start-ups offering block-chain platforms for certain areas of the industry. Two such examples are Shipchain which purports to offer visibility from the warehouse to the customer’s doorstep and OpenPort which is tackling the Proof of Deliver(POD) problem. Both these startups are based on the Ethereum (Blockchain) platform. There are also some companies which are engaged in issuing tokens i.e. crypto-currencies based on the shipping industry. (I will refrain from giving examples.)

The challenge will be for mid-size and small companies in the industry to select the appropriate companies with whom to work with for implementation of the Blockchain application. The partnerships will have to endure for many years.

In some cases the government bodies in some cities are getting pro-active and undertaking projects to streamline the supply chain. An example is the SmartLog project in Kouvola, Finland.

 Conclusion

Technology inevitably leads to the creative destruction of industries. They will doubtless cause a shakeup in the industry with some players becoming redundant. Government institutions and the bureaucracy are inextricably linked to the shipping industry. They will be an important factor determining the speed at which the innovations spread. Blockchains implemented right have the potential to reduce the sluggishness and friction that exists in the business processes of the shipping industry. Blockchains may very well be the key to unlock the fetters leading to a renewed growth phase in the shipping industry.

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