The value of blockchain to the transport & logistics industry
The value of blockchain to transport & logistics
Why the transport and logistics industry?
The initial blockchain underpinning virtual currencies in 2008 has since evolved into self-executing smart contracts: lines of code stored within the blockchain network that automatically execute the terms of the agreement between buyer and seller.
The transport and logistics sector, which operates with complex documentation, global co-ordination, and communication, is therefore an obvious industry that can gain from blockchain.
There are about 11 billion tonnes of goods worth US$4trn transported by ships annually and according to the International Maritime Organization (IMO) international shipping transports more than 90% of global trade. Shipping is considered the most efficient and cost-effective method of international transportation for the majority of goods but it takes about 200 document exchanges between multiple parties for a shipment to take place. The WEF estimates 20% wastage come from inefficiencies in the transport and logistics supply chain: blockchain could be the industry’s solution.
How can blockchain benefit the transport & logistics industry?
Each market participant within the blockchain trail – suppliers, manufacturers, freight forwarders, shippers, carriers, customs, or consumers – will have access to the entire document trail which cannot be modified or erased. Essentially, cyber-physical systems could operate on a common blockchain network, making transactions highly transparent and secure in nature.
Fraudulent activities are also less likely to occur. Cybercrime and cargo losses cost the industry approximately US$1trn each year. This could be reduced significantly as transactions on blockchain can be monitored in real-time, making it easier to detect suspicious activity. Data is also encrypted and stored across a network of servers. If a cyberattack took place, it would not be possible for the hacker to access the entire data repository nor corrupt the data. The larger the blockchain network, the lower the risk of getting attacked.
Less manual labour
Moreover, blockchain reduces a great amount of manual labour and time when it comes to document processing and verification at each destination across different jurisdictions. IBM and Maersk have been working on a blockchain platform called TradeLens that tracks and publishes shipping data around the world – granting users full transparency and a massive reduction of paper exchange.
On the other hand, nine industry players are collaborating to develop Global Shipping Business Network, a blockchain-enabled platform. The consortium includes carriers such as COSCO Shipping Lines, CMA CGM, and terminal operators like PSA International. Both examples are cost saving and add value to the reliability and integrity of a supply chain transaction.
Protecting staff privacy
Another major advantage relating to the transport and logistics sector is the crewing cost. This has increased between 10% to 15% during 2020 due to COVID-19 and difficulties experienced in the change-over of crews. The maintenance of crew members’ private information has always been vulnerable, time-consuming, and complex. With blockchain technology, organisations can protect their staff with tamper-proof records, as well as streamline and automate workflows. It offers a huge advantage in terms of addressing the specific pain points of the industry.
In addition, blockchain can also provide an e-wallet that makes it easy to present and verify health status directly to the crew’s digital wallet in an encrypted network. Having such verifiable digital credentials on hand could facilitate a safe reopening of international borders and the world economy.
Blockchain can further integrate with regulators of the industry, making it more secure, efficient, and simple. Notably, we can infer that logistic business models with low supply chain integration have higher blockchain potential. This is because blockchain potential grows with interaction-based complexity – the more stakeholders are involved, the more complex it becomes.
Therefore, freight forwarders, 4PLs, and carriers would have the highest blockchain potential since they interact frequently with other stakeholders along the transport chain.
What next for blockchain in T&L?
In order for the transport and logistics ecosystem to benefit from integrated blockchain technology as a whole, digitalisation is prerequisite. This would also help to onboard other relevant market participants like bankers, auditors, regulators, and insurers. For instance, banks are already working to digitalise and streamline payment transactions to expedite end-to-end payments in the maritime industry.
Take for example the Singapore government, which is driving towards a smart nation at various national, industry, and corporate levels. To do so, they enabled a National Digital Identity (“NDI”) for businesses and individuals to transact with both private and public sectors.
Users of the SingPass Mobile app can digitally sign an electronic document with an identifiable signature. The signature will be linked to its author via cryptographic methods and instantly validated at the point of signing. No document data will be transferred between the signing partner’s platform and the NDI platform during this process. Instead, an immutable code representing the signed document will be transferred through blockchain. Such standard practices can ultimately improve Know-Your-Customer and compliance efficiencies in the long run.
While we can never expect all business industries and public sectors to incorporate into one blockchain, it certainly helps if they could integrate one another via the mode of consortium blockchain. This might eventually change the way businesses operate and deliver a positive impact on the global economy.