Can logistics industry overcome blockchain paradox?

Published: Thursday, December 12, 2019

In a world of increasingly complex supply chains, paperwork piles up. Just one shipment may generate a stack of about 200 communications documents, and the cost of processing and administering this documentation is estimated to make up one-fifth of the cost of transporting goods. Blockchain could be a game-changer, ripping up this paper process and offering substantial efficiency savings.

The irony is the enhanced trust and transparency that blockchain could help to foster in the logistics industry is needed in order for the technology to be fully embraced and adopted in the first place. For the full potential of blockchain to be realized, an industrywide ecosystem needs to be developed.

But a recent Boston Consulting Group (BCG) survey found that although 88% of transport and logistics professionals believe blockchain will disrupt the industry in some fashion, “nearly three-quarters (74%) say that they are exploring opportunities only superficially or haven’t thought about blockchain at all.”

A lack of trust and coordination between industry players — the very aspects of the logistics industry that blockchain could help to improve — are currently blocking widespread adoption.

Best known as the technology behind cryptocurrencies like bitcoin, blockchain uses distributed data storage technology in conjunction with high-grade encryption to record transactions, protecting them from malicious revisions or deletion. The high level of trust in the data that is then engendered can result in related transactions being triggered, leading to a concept of ‘smart contracts’. The global blockchain market may be worth over $23 billion by 2023, up from $1.2 billion in 2018.

Blockchain has exciting implications for the way we move products around the world. If blockchain technology is adopted by the logistics industry, it could make shipping faster and more efficient and improve data visibility and demand management. This would be the result of fewer manual or ancillary transactions (emails, phone calls) being required.

Take the example of a sweater traveling from a factory in China to a shop in the UK. This journey may involve hundreds of paper documents and hours of manual data entry at different (and multiple) points in the supply chain for the same transaction/shipment. This increases the risk of error or an incomplete data chain and a reduction of trust in the data. Often, the retailer will have to make payment in advance.

In a blockchain-enabled supply chain, this sweater could be embedded with an intelligent chip (a function of IoT), which would send a digital signal when the sweater leaves the factory. This signal would be recorded in the blockchain, and the retailer’s system could automatically pay for the product as the result of a smart contract being triggered. An automated customs entry could then be lodged, which would be the equivalent to the importer making a certified declaration. Customs officials could automatically pull all the information they need from the database, knowing that nobody in the process has tampered with the data. When the sweater arrives, the sender could instantly verify that the right person has received it through identity management that is blockchain-enabled.

Blockchain could also help improve shipping industry safety. According to data from the Cargo Incident Notification System, close to a quarter of all serious incidents on containerships are attributable to misdeclared cargo. Wrongly classified or inaccurately identified dangerous cargo can lead to fires and other accidents that cause huge losses, damage and delays.

Tradelens, a consortium of industry leaders that my company is a member of, is currently exploring how digital tools, including blockchain, could help tackle this issue by improving the traceability of dangerous goods and generating more transparency and accountability. A large amount of this security will come from product “self-identifying” against a trusted database stored in a blockchain-enabled system. Ultimately, this should reduce the number of serious incidents involving container ships.

Clearly, blockchain technology could prove to be a powerful tool for the logistics industry. And investors understand this: Analysis by BCG found that venture capital investors have invested around $300 million into startups offering transport and logistics blockchain solutions since 2013. Logistics companies are making their own investments, too.

But a plethora of new solutions is one thing, and effective adoption of blockchain is quite another. Implementation is very difficult due to a fragmented value chain that includes many parties, lack of a common implementation of technical standards and complex regulatory requirements that differ from one market to the next. Add to this the inherent lack of collaborative forums in the industry and a lack of transparency, and you have an industry that’s both ripe for blockchain disruption and simultaneously very difficult to disrupt.

Until a critical mass of new industry participants fully understands the benefits of frictionless international trade, embraces the potential of the new technology and creates effective forums for joint implementation, the promise of more efficient, streamlined trade around this technology will be slow to be realized. But once we do reach that tipping point, global supply chains could be changed forever.

Companies that play a role in the global supply chain need to recognize the full potential of blockchain by working together to accelerate the pace of change. Organizations need to ensure they recruit or build the right skills in their organizations and make the exploration and implementation of technology like blockchain one of their key strategic priorities. Critically, rather than protecting information from each other, companies must work together to find solutions, even if this means working closely with competitors. And to reach its full potential, blockchain should be used in conjunction with other technologies, including IoT, robotic automation and big data analysis.

Blockchain is set to change the world, including the way that we move goods around the globe. It’s time for logistics companies, governments and regulators to work together to overcome the blockchain paradox. Source: Biju Kewalram, Chief Digital Officer at one of the world’s leading logistics companies, Agility (Forbes).