Imagine the global logistics industry without complicated procedures, delayed payments and incomplete or falsified records. A supply chain, where all assets can always be traced by everyone – from the supplier to the end-customer. Sounds impossible? Well, it might not be.
All over the world, big players are experimenting with blockchain – the hack-proof underlying technology of cryptocurrencies such as bitcoin – to streamline and simplify their processes and to lower costs. And while it’s early days yet, hardly a week goes by without some large consortium announcing that their new blockchain protocols have the power to save the industry millions. Just this January, Danish shipping giant Maersk has announced a joint venture with IBM using blockchain technology to create more efficient and cost-saving methods to conduct global trade.
Just as a reminder of the financial dimensions at stake here: More than $4 trillion in goods are shipped round the globe every year. The cost of the required trade documentation to process and administer these goods is estimated to reach one-fifth of the actual physical transportation costs.
Once you get your head around the basic principles of blockchain, it is not hard to understand what makes the technology’s potential so attractive to the logistics industry. Put simply, a blockchain is a digital ledger with many identical copies on multiple computers. Originally designed as a tamper-proof way to digitally exchange currency, all transactions are recorded as series of firmly attached blocks – hence the name. Each change is registered simultaneously on all copies, so that every stakeholder’s version is always up-to-date.
So instead of sending paperwork back and forth between the multitude of companies involved in, let’s say, shipping a container from Africa to Asia, you can collect all the relevant data in one blockchain. Tampering or falsifying records is nearly impossible as changes would have to be made on all copies at once.
Also, since the blocks are all timestamped, encrypted and built on top of each other, it is impossible to alter any one block without first opening the ones that came after it. This kind of peer-to-peer network not only frees each stakeholder from having to keep their own books, it also eliminates the need for intermediaries to record, verify and coordinate an official version all parties accept as “genuine”.
Keeping players honest
Since every transaction is irreversibly anchored in the chain, the technology makes each asset registered in the database trackable and the supply chain quite transparent. The universally visible updates within the chain allow exporters and importers to track their goods in real time across all borders. This transparency is not only practical, it also serves to keep the players honest. If consumers can trace their steak all the way back to the organic farm or check if the manufacturer of their bedsheets really did order Egyptian cotton to make them, suppliers are not only going to make sure that everything is above board, but will use this transparency as a marketing tool.
US retail giant Walmart, for example, has just patented a blockchain-based delivery system that monitors packages between sellers, couriers and buyers.
What makes blockchain such an interesting tool especially for the logistics industry, however, is the invention of smart contracts. Securely lodged within the blockchain, these software programs can automatically trigger actions once the agreed upon requirements have been fulfilled. They can, for example, transfer payments at the precise moment a delivery is recorded or levy a fine if a condition has not been met in the allotted timeframe.
Processes that can take almost a week in the current, paper-based systems, are reduced to a mere few seconds. It goes without saying that these automated processes have the potential to eliminate a whole layer of bureaucracy involved in shipping goods around the world. Currently, Europe’s two largest ports – Rotterdam (Netherlands) and Antwerp (Belgium) are experimenting with pilot projects to automate and streamline container logistics operations.
While it’s important to remember that it’s early days yet, blockchain does have the power to transform the industry. The technology is incredibly elastic and can be shaped and tailored to fit different processes and the needs of each group of participants. Supply chains thus have the option to start using blockchain systems for parts of their operation and gradually expand, as time goes on, to one day create smarter, faster and more secure processes from supplier to consumer.