Hurdles make blockchain slow burn for container shipping

Hurdles make blockchain slow burn for container shipping

Blockchain technology.

One thing is certain regarding blockchain technology circa mid-2018: it has the potential to transform and dramatically improve logistics efficiency. But that potential will remain only that — potential — until many paramount issues are resolved to universal satisfaction. Photo credit: Shutterstock.com.

Amid a swirl of buzz and grand promises, the container shipping industry’s adoption of blockchain will be a slow burn, considering the hurdles ahead: organization resistance to change, cost of technology, and the time it will take to build a network of distributed parties (called nodes in blockchain parlance) to participate.

Like radio-frequency identification (RFID), heralded as an industry game-changer in the mid-2000s, analysts believe blockchain will take at least five years to get real commercial traction. But RFID never realized its initial promise, and there’s already worry in some quarters that a similar fate awaits blockchain. From a shipper perspective, commercial traction will mean a mature set of private, independent, but interoperable solutions or two or three industrywide solutions that are virtually omnipresent.

The key to moving from the transformative potential of blockchain to a state of usage lies in shippers and their service providers accepting that current logistics processes shouldn’t be shoehorned into blockchain solutions, and that a rethink of how shipping parties interact is required.

In other words, how does the shipping industry move from the transformative potential of blockchain in logistics when there is little understanding of what it will take to get to that state, nor what that state actually looks like.

At its most basic level, a blockchain is a database, but it's a different kind of database than most in transportation and logistics are accustomed to. The grand vision of blockchain is a distributed ledger that allows multiple parties to rely on the accuracy of a single transaction or action. To understand the underlying structure of blockchain, imagine a string of those transactions and actions that build on each other cryptographically.

For instance, blockchain could be set up to establish the chain of custody in a container shipment. Such a scenario would see ownership of the freight transferred digitally once a set of conditions has been met (such as delivery from origin port to destination port) with a specific action (such as confirmation that the container has been unloaded from the vessel) triggering the change of ownership and payment between parties.

All of that would happen electronically, eliminating paper-based documentation and errors from multiple parties entering the same data into different databases. But it also would create a scenario in which the trust in the data is verified by the structure of the system itself, not by individual parties.

That, in a nutshell, is the promise of blockchain in logistics: leveraging the number of people involved in a shipment as an advantage, rather than an impediment.

Blockchain advocates — whether technology solutions developers, logistics services providers, or carriers — are convinced the technology eventually will find a home in global logistics, but even they are realistic about the pace of adoption and some structural hurdles that may be difficult to overcome.

Those hurdles, in general, revolve around three key questions:

-Who is developing the blockchain solution?

-Can individual solutions build enough critical mass to take advantage of blockchain technology?

-To what degree can industry parties agree on standards to make multiple solutions interoperable and easy for parties to use?

The interoperability question will be the key to unlock the blockchain kingdom. Multiple solutions likely will be developed in parallel — indeed many are already on the way from proof of concept to commercial product — so providing shippers, forwarders, suppliers, and other relevant parties a simple way to interact with all systems will be mandatory.

Multiple solutions likely

The question of whether the liner shipping industry will join one big blockchain has essentially been answered with an emphatic “no.”

Maersk and IBM’s joint venture to create a blockchain to support global trade, announced early this year, is the most prominent such entity, but in March, Accenture, shipping line APL, freight forwarder Kuehne + Nagel, beverage manufacturer InBev, and a European customs organization tested a blockchain solution to streamline the bill of lading process. APL officials told JOC.com that the consortium was on its way to building a commercial application. It’s hoping to bring additional carriers on to the platform to bolster the idea that the product is neutral in nature.

Meanwhile, in mid-July, shipment management software provider CargoSmart said it had developed its own shipping documentation blockchain solution with Oracle. Carriers, forwarders, and shippers use CargoSmart to execute bookings, submit shipping instructions and trade compliance documentation, and track shipments.

In addition to these projects, a handful of blockchain startups, including Hong Kong-based 300Cubits, Denmark-based Blockshipping, and Slovenia-based CargoX, have set out to show how blockchain and associated cryptocurrencies might transform core shipping processes such as booking, container tracking, and bill of lading creation.

CargoX in mid-July said it had enlisted Swiss forwarder Fracht AG as a customer for its blockchain bill of lading solution. “We have made various tests on the use of blockchain in shipping and forwarding, and the bill of lading is exceptionally suited, being a document of value that exchanges hands and needs to be secure,” Fracht CEO Ruedi Reisdorf said. “We began studying the potential uses, apart from bitcoin, which can be looked at critically, whether it really makes sense or whether it will just be a footnote in history. But look at the internet bubble two decades ago. It busted, but the internet still is ‘the thing.’”

Nearly every software provider of any significance is dabbling in the technology, testing whether there is a commercially viable application to pursue.

Public or private?

If the question of whether multiple blockchain solutions largely has been answered, the next question is whether the industry can reap the benefits of so-called private blockchains — that is, ones where parties need permission to view or access the database.

“Blockchain has value when you have multiple users,” said Cheng Sai Wing, APL's head of liner planning and strategy. “It’s not so much about public versus private as it is about the number of users. The value grows the more parties you bring on. There’s still a network-based value. There has to be some degree of permissioning, in terms of who can see and who can validate. There might be other use cases within shipping where a public blockchain might be more applicable. But I think a private one makes more sense in this particular use case.”

There are others who believe blockchains need to be public to fulfill their true potential.

“We firmly believe that public blockchains are the true game-changing technology,” said John Monarch, CEO of startup company ShipChain, which is trying to compel the industry to use digital tokens to participate in a blockchain visibility platform. “There really isn’t much to gain for an enterprise by using private or permissioned blockchain systems, due to the lack of inherent trust in them — they could just as well use a centralized database, as it would behave the same. A public blockchain, with its incentive mechanisms such as tokens, truly fosters the trust of the ecosystem without having to trust all of the players involved.”

Jeremy Nixon, CEO of liner carrier Ocean Network Express, had much the same view. “If any of us come out of the blocks and try to be a bespoke solution, it will not move forward,” he said. “We are not going to invest in something that is some company’s baby that they have exclusive copyright on and [that] will be a closed system. We need to have an open system.”

Indeed, as individual private blockchains emerge, there has been public and private lament about the quantity and perceived neutrality of these solutions. While the concern for liner carriers may rest in avoiding a data-reliant product developed by a competitor, shippers have a different concern. Will they have the bandwidth, in-house expertise, and willingness to participate in multiple blockchains?

In other words, if a shipper is asked to join blockchains led by Maersk, APL, and CargoSmart, will it choose one, more than one, or all of them? Will it connect individually to all three, and will those integrations be undertaken in-house or be farmed off to a third party, such as a consultant or third-party logistics provider (3PL)? Or, perhaps, will middleware emerge that allows a shipper to connect to one system and gain access to whichever blockchain protocol it needs to?

“Interoperability is the key word,” Cheng said. “Defining how that interoperability works will be very important. That’s why we want to have more carriers involved. The more the network grows, the more chance it will have to attract other carriers.”

The standards dilemma

Interoperability, sources tell JOC.com, could be reliant on the development of standards. But standards are hard and time-consuming to develop. A more realistic path forward for blockchain interoperability is another set of software companies normalizing protocols across the various blockchain solutions. In tech parlance, it’s called an abstraction layer.

“It would be detrimental for the shipping industry if the different factions and initiatives compete head-on trying to make their specific blockchain technology choice the de-facto standard for the industry,” said Peter Ludvigsen, CEO and founder of Blockshipping, told JOC.com earlier in 2018.

More broadly, the problem with much of the current thinking around blockchain is that it's attempting to shoehorn this new technology into old ways of thinking, when the broader concept behind blockchain is to engender new ways of thinking.

For instance, while the idea of providing a single trusted ledger for all the parties related to a shipment to add, view, and verify data is sound, it’s not exactly earth-shattering. It’s an incremental evolution from a standard database used to collect the same data, perhaps encrypted in a way that makes it harder for data to be changed.

As Eric Rempel, chief information officer at the freight brokerage and 3PL Redwood Logistics, put it, “It’s like saying, ‘Here’s my typewriter, now plug it into the internet.’ Most people are trying to use something transformative for something mundane. The catalytic event for what will drive use of blockchain is not even remotely defined right now.”

For example, let’s assume a shipper is the controlling party in its network. That shipper might want multiple 3PLs to provide or pull data from a common portal, but it wouldn’t want those 3PLs to see any data that’s not directly related to them. Similar situations arise with overseas suppliers or transportation providers. So, a company could theoretically pull those same network structures into a blockchain environment, but does that make sense?

“Bitcoin is permissionless,” said Jim Rice, deputy director at MIT’s Center for Transportation & Logistics. “But in [the] supply chain, you want to grant permission. I get to decide who has access. The question is, how do you get the benefits of immutability and visibility when you need to constrain those things?”

This might end up being a dead end for blockchain: a technology that’s optimally used in a public, trustless environment running head-on into an industry that pathologically seeks trust. In a theoretical world, a public blockchain with thousands of participants (nodes) would provide that trust. But is an entire industry ready to shake loose of its moorings?  

“There are two questions: the tech question and the culture question,” said Brian Laung Aoaeh, a partner at the venture capital group KEC Ventures who focuses on supply chain technology. “To me, the culture question is the more difficult one. I’d spend my time cracking the culture question.”

Indeed, there is a good chance blockchain will become a fundamental building block of liner shipping technology, but likely when people stop thinking about the underlying technology, focus on the applications, and ready themselves for change.

“Tech gets adopted when it becomes simple,” Rempel said. “When it’s demystified.”  

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

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