FROM MAGAZINE: Blockchain: the next big disruptor

Its tamper-proof design and unparalleled transparency enables decentralised, digital and trusted transaction. Blockchain is set to change the way the world does business and why blockchain will transform the logistics industry.

Reji John

Economists have been exploring people’s behavior for hundreds of years. They study how people make decision; how they act individually and in groups; and how they exchange value. They also study the institutions that facilitate trade, like legal systems, corporations and marketplaces. But today there is a new, technological institution that will fundamentally change how we exchange value, and it’s called the blockchain.

It is said that blockchain will revolutionise trust on a global scale and the implications are huge. When blockchain technology turned from a geeky thing into a buzzword for major businesses a few years ago, it was only a matter of time before it expanded far beyond finance into other industries.Its advantages, like tamper-proof design, utter accountability and unparalleled transparency, have drawn attention from stakeholders of very diverse industries, including logistics.

The concept of a blockchain – a distributed, tamper-proof and time-stamped database of transactions that can be managed without intermediaries – is highly attractive in the supply chain domain, and the industry has launched a number of proof-of-concept initiatives.

In logistics, the best known blockchain pilot programme involved Maersk and IBM. It centered on creating a digital distributed ledger to create a single electronic place where all the myriad documents related to a shipment could be housed.

Coming at a time when the Danish shipping giant Maersk accounts for 15.8 percent of the world’s global shipping fleet traffic has experienced a sharp decrease in annual revenue, the application was designed to help save costs by moving the expensive and time-consuming paperwork between each of the counterparties to a blockchain-based smart contract system.

Built in partnership with IBM using Hyperledger’s open-source Fabric blockchain, the test resulted in a trans-Atlantic shipment of goods from Schneider Electric, a French energy management and automation company.

Following the successful test, Ibrahim Gokcen, chief digital officer for Maersk Transport & Logistics, said that the company sees a potential role for the technology in its supply chain management process, and is exploring other applications as well.

“We believe blockchain has a huge potential for supply chain applications. We don’t think it’s yet ready for prime-time fully, and that’s why we’re exploring, piloting in different use cases, to really understand what are the initial applications of blockchain,” said Gokcen.

Accounting giant EY recently announced that it will launch the first blockchain platform for marine insurance, alongside Microsoft, A P Moller-Maersk and others. The distributed ledger will be used to capture information about shipments, risk and liability, and to help firms comply with insurance regulations. It will also ensure transparency across an interconnected network of clients, brokers, insurers and other third parties. EY explained that its decision to secure marine insurance data with blockchain was due to a “complete inefficiency” in the sector.

There is another successful pilot programme delivered by logistics technology company Marine Transport International (MTI) has reportedly demonstrated that the logistics industry will see improved connectivity, efficiency and security thanks to blockchain. MTI, in conjunction with Agility Sciences, have recently released a whitepaper detailing the deployment of their container streams system in a supply chain environment. The results of the pilot have been verified by scientists at the University of Copenhagen and maritime technology leads at Blockchain Labs for Open Collaboration (BLOC).

The project, which has connected supplier, shipper, load point, customs and terminal on a shared blockchain ledger, has far reaching consequences for the logistics industry as it seeks new ways to improve security and profitability. All parties involved in the supply chain benefit from automated data flows as the system allows complete interoperability of data sources, even including legacy systems.

“The results of this successful pilot demonstrate the strengths of blockchain technology when deployed to link the various actors in the supply chain. We are confident that firms throughout the logistics industry will see a broad spectrum of benefits stemming from blockchain deployment,” said Jody Cleworth, CEO of Marine Transport International.

The blockchain has proven to be an excellent way of connecting the different parties involved in any supply chain environment due to the transparency and security-by-design of the technology. In recent months, the shipping industry has fallen victim to industrial-scale cyber attacks which have left large shipping lines, such as Maersk, paralysed and unable to serve clients. A blockchain-enabled supply chain is highly resilient to cyber attack - a copy of the essential shipping data is stored on each node on a decentralised network, meaning that even if one node is compromised, the data is safe nevertheless.

“This pilot demonstrates the great potential for distributed ledger technologies to be used in improving supply chain processes. The container streams system is unique in the fact that it does not require the complete replacement of existing systems - instead, MTI’s solution allows complete interoperability with existing legacy infrastructure. The logistics industry as a whole can expect better visibility, connectivity and cost savings as a result of distributed ledger adoption,” said Karim Jabbar, an Industrial PhD Fellow at the Department of Computer Science in the University of Copenhagen.

Port of Rotterdam, Europe’s largest shipping port, is taking part in a new blockchain consortium focused on logistics. Besides the port, the project involves number of local and regional institutions, including ABN Amro, Delft University and the Netherlands Organisation for Applied Scientific Research. Also taking part in the initiative are Royal FloraHolland, a major floral auction house, and the Windesheim University of Applied Sciences, among others.

Over the next two years, consortium members will test applications for sharing logistical and contractual information between parties. According to Delft University, the project will move forward in conjunction with a separate blockchain initiative pursued by the Dutch Ministry of Economic Affairs. Delft said that it would create an open-source infrastructure to serve as the basis for testing among the other companies and institutions involved.

“This project involves more than just talking about possibilities – we’re really going to apply the technology,” said Johan Pouwelse, an associate professor at Delft who is acting as project manager.

In April this year IBM and Sichuan Heijia announced the launch of a blockchain-based supply chain financial platform for pharmaceutical procurement to help improve efficiency, transparency and operation of supply chain finance. The Yijian Blockchain Technology Application System is a permissioned blockchain platform that uses Hyperledger Fabric. It is in production with Hejia and one pharmaceutical retailer, a hospital and a bank running business transactions. Hejia plans to expand the platform to include multiple pharmaceutical retailers, hospitals and banks in the future. The system is designed to help eliminate some of the financing challenges in the pharmaceutical industry.

Working with IBM, Hejia has established a blockchain-based business network among these supply chain participants. By tracking drugs through the supply chain and encrypting trading records, the transparency of the blockchain can help establish the authenticity of the transaction. In turn, this may help lower the credit risk profiled by financing institutions, which should allow the payment period to be shortened, possibly to the first or next trading day. Overall, the platform is designed to help to reduce the turnover time of funds on both sides of the supply chain and allow banks to be more informed and grant access to funding for small and medium pharmaceutical retailers.
Ramesh Gopinath, vice president of Blockchain Solutions at IBM, claimed that the use case offers an ideal example of how the company’s enterprise blockchain platform can smooth multi-party transaction processes. “Blockchain is perfect for the kind of flow that happens between three parties. It’s not a random thing, we see a pattern of this appearing again and again.”

The US retail giant Walmart has started a major test of blockchain technology for supply chain management. A pilot project, scheduled to start in the first quarter of 2017 and run for four months, plans to leverage distributed ledger technology to track and trace pork in China and produce in the US — two high-volume product categories with large markets. The project — a collaboration between Walmart, IBM and Tsinghua University in Beijing — was first unveiled in October, when the project partners claimed they were creating a new model for food traceability, supply chain transparency and auditability. “By harnessing the power of blockchain technology designed to generate transparency and efficiency in supply chain record keeping, this work aims to help enhance the safety of food on the tables of Chinese consumers,” noted an IBM press release.

It is common that in Chinese ports, less than container load (LCL) business processes are complicated and inefficient. As container throughput volumes have risen in line with the growth in international trade and economic development, the need to improve LCL processes has become more urgent. The Malaysia Institute of Supply Chain Innovation (MISI) and Shanghai Jiaotong University are engaged on a joint research project to develop a blockchain-based solution to the problem. They are building an LCL Export Platform that uses blockchain technology to promote the integration and exchange of information flowing between forwarder agencies and their shipper clients.

In most Chinese ports, the LCL market is fragmented and information sharing is minimal, resulting in unnecessary delays. Thus, there are opportunities to improve the existing LCL booking process by integrating the various actors in the supply chain.

Also look at the audacious vision that some companies has for introducing blockchain in logistics. Kouvola Innovation is a dynamic development company owned by the City of Kouvola in Finland. It proposes that pallets with RFID tags would communicate their need to get from point A to point B by a certain date. Carrier “mining” applications would bid for the right to move that load. The RFID tag would award the business to the carrier that bests meets a shipper’s price and service needs. Then as the move progresses, the blockchain would continue to track the shipment.

Another pilot by a company called T-Mining, based in Antwerp, Belgium, currently developing and testing blockchain-based applications for container logistics. These will improve the security at the physical handover of containers in ports significantly. Moreover, using blockchain technology we enable more efficient information sharing with trusted parties and reduce operational and administration costs for all stakeholders in the logistic chain.

While the historical roots and application of blockchain technology have been principally focused on the financial sector, it is now amply clear that there is a highly compelling argument to be made regarding the potential benefits to the $8.6 trillion global logistics market. The inherent multi-party, network-based nature of logistics alone makes it a totally viable and highly attractive candidate. But there is also considerable public information available documenting numerous examples of projects already being undertaken in the logistics industry; by shipping ports, logistics providers, and global shippers alike.

The potential benefits of blockchain in logistics are well beyond the examples narrated here or many more already available in the public domain.

Perhaps its impact could be more than the way the internet blew open the doors to an age of information available to everyone. The beauty of blockchain is that it works for almost any type of transaction that involves a value, such as money, goods and property. Logistics, certainly, has huge potential.