Doing Business Better - Blockchain in Transport & Logistics

If you take a look around you, the likelihood is that you are surrounded by all sorts of goods that have sailed oceans, crossed plains, and its title traded through many hands all before ending up in your home or workplace. It is estimated that around 90% of global trade annually is carried out by shipping. Yet, despite the enormous scale of the transport and logistics industry, and our immense dependence on it, the sector continues to grapple with—and tolerate—some serious inefficiencies.

Each year, businesses involved in global trade absorb significant losses to account for uncertainty in their systems and records. One simple shipment can be subject to around 200 different transactions or communications, between up to 30 organisations.[1] With so many parties—often with different systems and with competing interests—the margin of error can swell considerably. Add to this the commercial incentives to retrospectively tinker at the edges of the data to cover over delays or damage, for example, and the problem grows larger still. To account for these inaccuracies, businesses often include extra inventory in their consignments, representing a significant ongoing cost over time.

Earlier , we made the case for the incorporation of Blockchain technology in supply chain management. In this article, we explore the need for an innovative solution to data management in the transport and logistics industry, and how Blockchain may be just the right fit.

Covered from end to end: the benefits of Blockchain in logistics

One of the inevitable downfalls of the current machinery of international trade is that, despite process digitisation on a grand scale, there are still ‘analogue gaps’ that arise whenever goods and accompanying information are transmitted from one party or system to another.[2]

When you multiply this across the entire supply chain, a significant margin of error and uncertainty emerges, leaving open the possibility that any given piece of inventory may be recorded as being in two places at once, or not being anywhere at all.

Blockchain represents a well-matched solution to this problem. As we explained in our first article on the basics of Blockchain, the fundamental premise of the technology is the existence of a real-time, permanent and unchangeable record of information distributed across the entire network of users.

By using Blockchain technology to track the unique identifier of any given item of stock, the status of that item can be ascertained by any party at any given moment, and can be traced right back to the start. Retrospective data manipulation is impossible, as is the existence of the same piece of inventory in two places at once.

These gains in accuracy, certainty and accountability may leave businesses significantly better off in the long run, allowing for more accurate projections to be made and eliminating the need for deliberate oversupply to account for uncertainty.

Doing business better: embedding transactions into the Blockchain

Not only do ‘analogue gaps’ render the records held by parties along the supply chain somewhat unreliable, they also give rise to one of the most excruciating challenges of modern commerce: debtor management.

One would be hard-pressed to find a business that doesn’t know all too well the pain of preparing and sending invoices, only to have them missed, processed at a glacial pace, or conveniently ‘lost’ altogether. Herein lies a further layer of promise: not only can Blockchain trace transactions, it can be the framework through which the transactions are carried out.

As we explained in one of our earlier articles, smart contracts are self-executing contracts in the form of a set of encoded instructions that self-perform when certain pre-set criteria are met. In this context, Blockchain may be able to alleviate the hair-pulling associated with traditional invoicing. By tracing inventory throughout the supply chain, smart contracts can be used to trigger automatic and instantaneous payment upon confirmed receipt of goods by a consignee.

Not only does this enhance certainty, reduce risk and eliminate delays in payment, it may also significantly reduce administrative costs and personnel requirements. Whatever the outlay of introducing Blockchain throughout the global supply chain, it is certain to pale into comparison to the long-term savings that can be expected.

Looking ahead

The promise of Blockchain in the international movement of goods seems, perhaps, obvious. This opportunity hasn’t gone unnoticed; indeed, IBM, Maersk, Accenture and several other companies have all been making headway. Yet still, why haven’t we moved further?

There are some important barriers to be overcome. The fragmentation of the global supply chain across a vast group of players, though making it a natural target for Blockchain-based rationalisation, also makes it uniquely difficult to get everyone to adopt a common system. Commercial incentives, regulatory barriers, limited trust, and the sheer scale of the challenge may all inhibit progress.

The starting point, then, must be a cultural shift. There is a need to convince organisations, and the people within them, of the benefits of collaboration, as well as building up knowledge and understanding of Blockchain and what it might represent for the sector.

If you are interested to know more or have questions about how changing supply chains or Blockchain might affect your business, please get in touch with Mark Love in our Business team.

[1] https://www.ibm.com/downloads/cas/VOAPQGWX

[2] https://www.ey.com/Publication/vwLUAssets/ey-blockchain-and-the-supply-chain-three/$FILE/ey-blockchain-and-the-supply-chain-three.pdf