Blockchain theory's path to reality in shipping beset by details and distrust

Blockchain theory's path to reality in shipping beset by details and distrust

The Port of Oakland.

The more that blockchain becomes understood, the more conceptually, at least, it fits hand in glove with international logistics. But actually transitioning logistics to the paradise of transactions being recorded instantly and efficiently is proving to be quite a formidable task. (Above: The Port of Oakland.) Photo credit: Shutterstock.com.

The more that blockchain becomes understood, the more conceptually, at least, it fits hand in glove with international logistics. And that is the issue. Conceptually, the idea of breaking down the documents, information, and commitments associated with international trade into a series of digital executions based on permissions and encryption would fix the major inefficiencies the industry continues to live with daily. But actually transitioning the system from the largely paper-based process of today into a paradise of blockchain where things happen instantaneously and costs are driven down is proving to be quite a formidable task.

Indeed, the main question around blockchain today is not whether the technology is a solution to major industry problems such as excessive and slow-moving documentation, or even whether it will work in practice. Despite news reports of bitcoin accounts falling victim to hackers, it is not hard to imagine that blockchain can be made to work largely as advertised.

The hurdle: one industrywide, standardized platform

The main questions in fact are twofold but interconnected: Can the needed standards, down to minute levels of detail, be agreed upon so that parties know what they are getting into when they hit the buy or sell button and thus commit themselves to that decision for all human history? And as an extension of that, can all or most industry players come to an agreement on a common platform that will allow the benefits to be shared industrywide?

That latter idea of a common platform was delivered a sizable blow recently when the CEOs of two of the largest container carriers, Hapag-Lloyd and Ocean Network Express (ONE), insisted at the Global Liner Shipping Conference in Hamburg this month that only a common platform would spread the benefits industrywide. The statements were an implicit rejection of the approach of Maersk and IBM to create such a platform under the auspices of a joint venture (JV) company they collectively own, and then try to bring others into their platform.

“In and of itself, the Maersk-IBM platform could be good, but it would need the governance around it to ensure it was an industry platform and not just a Maersk-IBM platform. That is exactly the weakness you see with many of these initiatives. People will say, ‘I have an industry platform and I am the one controlling it,’ but that is a contradictory statement,” Hapag-Lloyd CEO Rolf Habben Jansen said.

Added ONE CEO Jeremy Nixon, “If you look back to Malcom McLean, if he had some dividend he charged, [container shipping] would not have taken off like it did. It was his gift to us. We need that kind of approach in terms of blockchain,” he said. “We need a collaborative approach and avoid having 20 different blockchains out there. We need to get to a situation where we can reach standardization very quickly, and work in a collaborative way to create a new trading system in the future, whether we are [third-party logistics providers], carriers, banks, customs authorities — something we can all use in a secure ecosystem.”

Such consortia are gaining traction outside of shipping as industries seek to leverage blockchain. HSBC said what it described as the world’s first trade finance transaction using a single blockchain platform was executed on a platform called Corda, a New York-based blockchain consortium whose members include more than 100 banks, regulators, and trade associations.

In an entirely different market, the MediLedger Project aims to demonstrate compliance with the Drug Supply Chain Security Act, utilizing blockchain technology to track and trace prescription medicines.

IBM CEO Ginni Rometty hinted in March that the Maersk/IBM JV could be opened to outside investment, but there has been no subsequent news of anyone else buying in. Even in the months since the JV was announced early this year it has been hard to reconcile its rhetoric around neutrality and an open-source approach to the technology with the need for Maersk, the largest carrier, to get its peers onto a platform that it owns and will presumably profit from alongside IBM to the degree it’s successful.

The merits of an all-including platform from day one

The Maersk approach appears to be one of maximizing first-mover advantage; get as many parties onto the platform as quickly as possible and the head start will be so great that others will be forced to come on board rather than going their own way. And it might yet work, as there have been a number of small start-up blockchain ventures and a handful of proof of concepts involving other carriers, but nothing as organized, fast-moving, and well-resourced as the Maersk/IBM venture.

And it is happening in an environment of hyperactivity around blockchain; the CoinDesk Consensus conference on bitcoin and the underlying blockchain technology in New York this month attracted 8,500 attendees, up from 2,700 last year. But with Maersk controlling less than 20 percent of global capacity, other carriers’ buy-in will be essential for anything resembling an industrywide platform to come into existence.

And that is what should happen. The lower costs, greater transparency, and manifold efficiencies that blockchain enables should accrue to everyone, with the field of competition being around who can make best use of those advantages — not who does and doesn’t get access to those advantages to begin with. That is the type of thinking needed to transition blockchain from concept to reality in this market.

Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell.