Apathy hampers blockchain in shipping

Apathy hampers blockchain in shipping

Blockchain and container shipping.

New research shows blockchain technology has a way to go before convincing the majority of enterprises of its near-term value. Photo credit: Shutterstock.com.

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.”  

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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.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.

 

 

Comments

Maybe it is a realization that Blockchain in and of itself does nothing beyond collecting data in a alleged secure environment for many to use, essentially many in the same functional arena such as logistics. Beyond the now known issues of the lack of a standard for that data gathering, it still is an issue of all those involved in a shipment have to be engaged and those could be in far flung places in the world with little in the way of their own underlying technology, required to input into the no-standard technology. Even many of the very large ocean carriers underlying technology to create shipment data (order to cash) is woefully behind, there is still a 20-25% error factor in billing and invoicing. So what's not to like about blockchain?

Exactly. Blockchain is a means of sharing the stone tablets of the Ten Commandments. The information stays the same along the way. It is not the information itself and solves no problems related to actual collection of good data. If you put bad data in from the start, you're just perpetuating bad data along the chain. Even if there's a broadly-accepted standard for blockchain, it doesn't automatically make things better. Look at the Internet; we have global standards for Internet protocols so that everyone can communicate effectively, but does that change the fact that garbage information can be posted and shared as if it is the truth, the whole truth, and nothing but the truth? Absolutely not.

Nothing we are doing today (or have been doing for the last 20 years) has closed the trust gap. Fraud in T&L continues to be a problem. Blockchain is a method to begin to cross that trust gap. It doesn't solve all the problems but it does open the door.

Erik, not sure how the trust gap is closed. Forget fraud, just mistakes, and getting all in a total transaction to participate. Then the issue of the underlying technology for whatever is being input, even if right. Lack of standards. etc. I realize a journey begins with one step, problem I have is, do we know the destination or direction when taking those first steps.

My opinion but the fact that blockchain makes everything tamper evident engenders trust. Brigid McDermott, last year at the RILA Supply Chain Conference, said it like this: "Blockchain is like doing the New York Times crossword puzzle in pen. It's not that mistakes will not be made, it's that everybody will be able to see that mistakes were made." My observation of networks based on blockchain is that by it's nature trust between the parties increases thereby reducing or eliminating the "trust gap". That has got to be better for Global Trade than what we have done in the past. I also like what Gary Barraco said in his white paper, 'The Top 6 Global Supply Chain Expectations for 2019': "To truly increase speed without compromising on other equally-important factors, a company must become both more efficient and more agile. While there are a few different methods to accomplish this, digitization is the only answer worth exploring."