Beyond a tough path to standardization, blockchain has a public relations problem with three-quarters of surveyed shipping enterprises uninterested in the technology.
New research from the global management consulting firm Boston Consulting Group (BCG) on blockchain shows the technology has a way to go before convincing the majority of enterprises of its near-term value, with 74 percent saying they are only superficially exploring opportunities or haven’t thought about blockchain at all.
Although 59 percent of the 100 transportation and logistics companies BCG surveyed believe blockchain will disrupt the industry in the next two to five years, 60 percent believe a lack of coordination among industry players and the absence of an ecosystem are major barriers to blockchain adoption. The survey found that only 16 percent of transport and logistics executives feel that they have a clear understanding of blockchain technology and its implications for their industry.
Those findings dovetail with conversations JOC.com has had with shippers about the topic, largely due to confusion about the technology, its suitability to their problems, and a perceived lack of value over existing systems.
Blockchain — distributed ledger technology
Blockchain, also called distributed ledger technology, is a “shared digital ledger for recording and storing transactions between multiple participants in a network,” BCG wrote in a report released Tuesday. It is unique to traditional databases in that any changes to data must be approved by a majority of participants and the data is cryptographically encrypted to make tampering evident.
The report, Resolving the Blockchain Paradox in Transport and Logistics, is a call to action for the logistics industry to gear up for a period when blockchain will be used to remedy a number of chronic pain points.
“The benefits include improvements to speed, traceability, cargo safety, and invoicing and payment processes. Such benefits can drive substantial cost reductions, helping to relieve the intense margin pressure experienced by many industry players,” according to the report. “Companies may even be able to use blockchain to develop entirely new business models, such as those relating to virtual global networks, pooled fleets, and on-demand staffing.”
The report noted a number of examples in which blockchain could alleviate inefficient process, including one example around freight invoicing, payment, and reconciliation. “Because the multiple parties involved in T&L [transportation and logistics] transactions maintain their own records and ledgers, invoicing and payments are paper-intensive processes that often entail manual entry. To check for mistakes and inaccuracies (and potential fraud), companies need to conduct a time-consuming reconciliation step before payments are released.”
Blockchain could, in theory, eliminate that reconciliation process by providing a decentralized ledger between the two parties that would serve as an immutable, timestamped record.
BCG’s research found that since 2013 venture capital groups have invested roughly $300 million into start-up companies offering blockchain solutions relevant to the logistics industry, including $53 million specifically in shipping and freight management, as well as in trading and shipping platforms. And that doesn’t include money invested by shippers and third-party logistics providers (3PLs) to explore the concept or build fledgling solutions based on it.
'An ecosystem that creates mutual benefits across the chain'
“To realize the promise of blockchain, T&L stakeholders must collaborate to develop an ecosystem that forges trust and creates mutual benefits across the value chain,” the report said. “Each company must also work with suppliers, customers, and even competitors to understand and implement solutions that address its specific business needs.”
To some extent these ecosystems have already begun to formalize. A number of ocean carrier-backed consortiums emerged in 2018 aiming to bring trade and shipping documents into a blockchain platform, while the Blockchain in Transport Alliance and its nearly 500 members are attempting to build use cases around the technology. However, it’s still unclear whether standards will take root in an industry typically averse to such mandates.
The report, however, believes there needs to be a company or group of companies that serves as an orchestrator “[to] catalyze the development of the ecosystem ... Regardless of which entities take on the orchestrator’s role, it is critical that they seek to promote value at the industry level, rather than pursue their own self-interest.”
BCG suggested that adoption of blockchain technology has also “been impeded by the very same obstacles relating to coordination and trust that the technology would help the industry to overcome. That, in essence, is the industry’s blockchain paradox.” The report notes that the efficacy of blockchain is dependent on other technology, both in terms of data feeding into and out of solutions.
The research was based on an online survey in September and October 2018 about participants’ understanding of blockchain and their progress in adopting the technology. Participants included those in the air freight, courier, express and parcel, logistics, rail, and shipping industries.