In his Dec 15 article in Tech Crunch, Deep Patel talks about the importance of some very visible moves made by UPS and some other giants in the logistics world around the concept of blockchain technology. Though discussed for years, the current movement behind blockchain logistics is fueled by strong interest by many to develop a far more transparent and streamlined overall shipping logistics system. Patel refers to the coming world of blockchain logistics as a “revolution”. The reality is that synthesizing and sharing information on common transparent platforms is critically necessary for a range of reasons, including cost/loss management, shipper security and logistics hand-off efficiency – and this will happen to a degree not seen today, it’s just a matter of innovation, collaboration and speed.
Patel suggests that the “main appeal of blockchain technology” is in the objective to develop decentralized and unassailable systems that together as a system, are more efficient and secure because they have no single point of failure and are overseen by multiple trusted parties and where data is unable to be hacked or corrupted. Considered as a whole-system this is an enormous task, but it is a challenge that has technological solutions. Technology itself won’t enable a systemized blockchain structure – this will come about by commitment and collaboration, firstly with some large and influential players. This is largely a leadership issue and with the work of groups like the Blockchain in Transport Alliance and the Blockchain Research Institute, there is movement to bring these system to reality.
Technology and information management is beginning to make a difference in areas that have never really been able to reach maximum efficiency previously. Requiring leadership and collaboration, we witness the pilot project between the Port of Los Angeles and General Electric, where they have partnered to digitize the specific metrics associated with incoming cargoes. Ultimately this partnership has the intention to use technology and data aggregation to help the Port, terminals operators, truckers and rail operators better plan and coordinate port access, equipment deployment and labor – to make more efficiencies for across the board. Importantly, improving operational efficiency also leads to reduced environment impacts due to shorter dwell times
Optimization of supply chains for greater responsiveness and transparency is an everyday concern of global companies looking to increase efficiency and be responsive to variable client demand. Beyond commercial issues, regulatory agencies in the US and the EU are stressing the need for greater flexibility and transparency in supply chains to meet increasing standards for anti-corruption, safety and environmental management.
All of this will not happen overnight and won’t be easy, but at this point there is reason to be encouraged that there is progress.
The TechCrunch article is below:
UPS bets on blockchain as the future of the trillion-dollar shipping industry
The world is run by trade. Freight and logistics in the U.S. alone account for nearly $1.5 trillion annually (2015 data). As the world’s economies scale up, that number is only expected to increase as we become more dependent on the international supply chain for our goods and services.
The industry, however, is not prepared for growth, as it currently sits on top of a crumbling infrastructure prone to systematic inefficiencies and rampant fraud. Countless intermediaries rake in fees and drive up the price of shipping. The problem is that the complexity and opaqueness of the process make it difficult to put checks and balances in place.
The FBI estimates that cargo theft causes an annual loss of approximately $30 billion per year (U.S.), with an average theft value of $190,000. In effect, cargo theft can cost consumers up to 20 percent more for their goods. And though most of the problem areas have been well-documented for decades, the distributed nature of ownership has instilled little accountability in any of the industry’s stakeholders.
However, disruption is coming to the industry in the form of blockchain technology, which promises to deliver a cheaper and more efficient system of managing logistics. Innovative startups, as well as major incumbent parties, are investing enormous amounts of time and resources in blockchain development.
Most recently, UPS announced they were going to join the Blockchain in Transport Alliance (BiTA), a forum for the development of blockchain technology standards and education for the freight industry. The alliance hopes to spur standards development for the shipping industry as a whole by implementing a secure blockchain system.
Why now? Why is UPS, along with hundreds of other major companies, betting on blockchain?
The answer: They want to be a part of the revolution. They want to play an instrumental role in developing the smart logistics network of the future. And they recognize that if they don’t get their foot in the door, someone else will
The main appeal of blockchain technology lies in its ability to create decentralized and immutable ledgers — networks that have no single point of failure, are maintained by multiple parties and whose information cannot be hacked or corrupted. This increases the security and transparency of all information that is stored on a blockchain across the life cycle of a transaction.
The freight and logistics industry incorporates a large number of brokers and significant amounts of hidden information across complex supply chains. No single party can access all aspects of the chain. Currently, the freight and logistics industry is heavily controlled by freight brokers, which exist to facilitate transactions of loads from shippers to carriers. Brokers seek out loads, tag on a markup, then sell it to carriers. This not only increases costs for carriers, it also leads to increases in downstream prices that directly affect consumers.
The lack of efficiency, transparency and security across the global networks is precisely the problem blockchain technology is designed to solve. Blockchain, if adequately leveraged, will give customers the opportunity to participate in a freer, more transparent global trade, and potentially limit the need for brokers and lower intermediary costs.
For those reasons, Linda Weakland, UPS’s Director of Enterprise Architecture and Innovation, is long on blockchain. She says, “It has multiple applications in the logistics industry, especially related to supply chains, insurance, payments, audits and customs brokerage. The technology has the potential to increase transparency and efficiency among shippers, carriers, brokers, consumers, vendors and other supply chain stakeholders.”
One effective way transparency and efficiency can be increased is by leveraging smart contracts, the core innovation behind the Ethereum blockchain. Smart contracts are essentially self-executing contracts that are fulfilled when predefined stipulations are met. This is particularly useful when it comes to increasing the efficiency of shipping escrow by removing or limiting the intermediaries involved, and therefore bypassing the markups they post.
Once a shipment is confirmed and recorded on the blockchain, it is immutable, meaning no party can dispute the validity of the transaction or fraudulently manipulate the records. Once transactions are logged, smart contracts can then release any payments in escrow instantaneously, limiting the time and costs associated with intermediary processing.
Given the nascent nature of blockchain technology, corporations and consortia around the globe are starting to invest in and partner with startups that are building proofs of concept in order to test solutions prior to commercialization. One example of a startup working on this is ShipChain, which aims to apply blockchain technology to the logistics space.
The company, which is part of BiTA, is building a fully integrated supply chain management system that gives insight into each stage of the logistics process. In addition, the company aims to create a decentralized brokerage system — essentially an open marketplace for shippers and carriers. Leveraging the transparency of information on the blockchain, the marketplace will let shippers optimize cost and time for every shipment.
In other words, shippers can track the capacity, cost and estimated delivery times for different routes for a given shipment before making a decision on the marketplace. At the same time, carriers can continually post information about their capacity for shipping vehicles and lanes, thereby dynamically adjusting the fairest pricing based on supply and demand. The transparency and efficiency afforded by the blockchain benefits all parties by allocating resources in the most effective way without artificial markups by rent-seeking brokers.
The lack of efficiency, transparency and security across the global networks is precisely the problem blockchain technology is designed to solve.
This increase in visibility throughout the process will dramatically decrease the theft and hacking that plagues the industry. Inherent to blockchain technology is the ability to create a decentralized, encrypted ledger that logs all of the critical transport data. This log is immutable to hackers, as no one has the ability to change or delete crucial information.
While the premise of blockchain is promising for an industry rife with inefficiency, the technology is still very much in its early days. As of now, a shipment from East Africa to Europe could require approvals from as many as 30 different parties. By the time it reaches its destination, up to 200 different interactions might have had occurred.
Many of these interactions happen not just between shippers and carriers, but also between regulators, retailers, wholesalers and even customers. For a global shipping blockchain network to function effectively, participation is needed from all stakeholders.
The future of logistics and freighting will be heavily dependent on blockchain. Even though shippers around the globe have existing means of tracking shipping containers, and detractors of blockchain may argue that completely revamping tracking for the freighting industry will be too massive an undertaking, industry leaders are already recognizing the potential of using blockchain to track supply chains.
Maersk Line, the world’s largest container-shipping company, has already teamed up with IBM to apply blockchain to track its cargo shipments in order to reduce the mountains of paperwork associated with each shipment.
Shippers and carriers are optimistic that advances in blockchain technology will support the industry’s growth for years to come.
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GLDPartners | Global Logistics Development Partners is an international investment and advisory firm that works globally through its offices in the US, Canada, Mexico and the UK. The firm provides direct strategic supply chain and facility location advice to companies that manage global supply chains and the firm develops project and implementation strategies for revenue and infrastructure development at and around seaports, airports and strategic trade and logistics hubs. GLDPartners Website
