7 ways blockchain Is revolutionizing transportation And logistics
Logistics is one of the least efficient industries in the world economy. In this business, the volume of which is estimated at 2 trillion dollars, many contractors, complex and very long supply chains, cumbersome paperwork and big problems with human factors. Blockchain will help simplify the entire logistics system, which DHL estimates will increase international trade by 15 percent and global GDP by 5 percent.
These are the seven key processes that will benefit the most from the introduction of blockchain technology into supply chains and logistics.
Shipment Inventory and Tracking
International logistics, which accounts for 90% of world trade, is discrete (separate, intermittent) and uses all modes of transport: rail, road, air and sea. Each member of the supply chain uses its own local accounting system, such as CRM, BPM, EDM, ERP or another. Communication between these systems is usually carried out on an analogue (i.e. traditional) method associated with paper documents: couriers, mail, fax, personal meetings.
This approach creates a lot of problems:
- Much of the cargo, containers and vehicles are lost or not used because they are “out of sight” of accounting systems;
- It takes a lot of time and money to eliminate accounting inaccuracies.
These problems cannot be solved with the traditional approach, as complex interactions and paperwork are necessary to confirm the truth of information in the accounting systems and on the legal level.
The blockchain technology can be used to create a single digital document management system in the cloud, which will allow participants in the supply chain to track the location of vehicles, cargo and their products in real time, even at micro levels.
Real use cases:
- Walmart for supplying mangoes, pork and greens. In the future, the largest chain retailer in North America plans to move all food supply chains to the Food Trust, developed by IBM. When Walmart introduced a blockchain into its logistics, it monitored the traceability of mangoes from the store shelf to the farm where the fruit grew. It took 6 days 18 hours and 26 minutes with regular means and only 2 seconds with the blockchain;
- Unilever uses the Provenance blockchain to manage the tea supply chain. The project involves more than 10 000 farmers, many banks, retailers and transportation companies;
- Nestle, like Walmart, uses IBM Food Trust to manage the food ingredients supply chains, such as mashed potatoes, milk and palm butter. This is how Nestle wants to show customers what their products are made of.
Verification of authenticity and quality
According to the Organisation for Economic Co-operation and Development, in 2018 the global counterfeit market reached 450 billion dollars, which is more than the GDP of countries such as Austria or Israel. Other studies show an annual loss of 1.6 billion tons of food (worth about 1.2 trillion dollars), 40% of which is damage during transportation. At the same time, the CDC estimates that much of this spoilage gets on the consumer’s table, which only in the U.S. leads to 130 thousand hospitalizations and 3 thousand deaths.
As for the problem with counterfeit products, the blockchain technology allows customers to track the origin of goods from the shelf in a store to a specific manufacturer: factory, farm, factory, person. And this data has a high degree of truth, because each batch of goods (or each individual item, if it is something large and/or expensive) is equipped with RFID tags that constantly tracks the location of the goods and the interaction between members of the supply chain.
In addition, RFID sensors can also measure speed, temperature, humidity and other empirical indicators. In this way, it is possible to detect a violation of transportation conditions and to detect food deterioration, as well as to track the process or the participant responsible for it. In addition, if a product is contaminated with, for example, E.coli bacteria, the blockchain system can detect the source of contamination in seconds and track all contaminated batches.
Real use cases:
- Everledger uses blockchains for the diamond industry. The decentralized registry stores data on the origin of the gemstone, color, transparency, cut, carat weight, certificate number and other information;
- Provenance. A project of the “Software as a Service” type, which collects and verifies the history of origin. It is used by Martine Jarlgaard, The Grass Roots Farmers Cooperative, the Organic, Pole and Line Association, Co-op and many other organizations and manufacturers of goods around the world;
- MediLedger uses the EPCIS иlockchain to manage the supply chain of medical products.
Improved freight and delivery
The typical delivery scenario involves about 30 parties: consignors and consignees, 3PL, carriers, government services, banks, insurers and others. At the same time, during the delivery of only one batch of goods, they exchange more than 200 paper messages: POD (delivery confirmation), invoices, BOL (bills of lading). The cost of servicing this paperwork is 300 dollars or 10–15% of the transportation cost.
IBM estimates that the implementation of the blockchain technology can save the logistics industry 38 billion dollars a year. This will be possible thanks to smart contracts, which automate most of the document flow and business processes. In addition, the distribution registry will reduce the number of errors, reduce delivery time and allow fraud detection.
Real use cases:
- Maersk together with IBM launched the TradeLens logistics system based on the Hyperledger Fabric (created by the Linux Foundation) to track shipping freight and exchange customs and financial information between supply chain participants. In the middle of 2019 TradeLens accounted for about 30% of the world market of navigable cargo transportation;
- GSBN. A direct competitor of Maersk with a comparable market share. The project involves Evergreen Marine, COSCO, CMA CGM, Yang Ming and OOCL. Technical partner is CargoSmart;
- VeChain. Singapore BaaS-platform for logistics and supply chain management. It is used by BMW, Renault, DNV-GL, H&M Group and other brands.
Billing and payment
As we mentioned above, sending cargo from one country to another creates a supply chain, which involves about 30 organizations that interact with each other more than 200 times. A significant part of these interactions is billing and payment. With the traditional approach, these financial transactions are complex, time-consuming and bureaucratic, creating the conditions for manipulation, fraud and generating a lot of errors.
The blockchain technology allows manufacturers and other businesses to automate the process of invoicing and payment, tying these calculations to a certain action, for example, making a record of the completion of shipment of goods or passing a ship, container and/or cargo across the border of a country or port. IoT sensors are responsible for tracking the action, while smart contracts are responsible for process automation.
Thus, the blockchain system solves many problems:
- It will ensure the accuracy and adherence to deadlines for financial settlements;
- It will reduce the need for paperwork and intermediaries needed to ensure integrity and compliance, which will greatly reduce costs;
- The blockchain technology will help to prevent fraud or promptly detect it;
- It will reduce the generation of errors (for example, incorrect company name or account number) to a very low level.
Financial settlements between participants in logistics processes can be made in fiat and/or cryptocurrencies. The latter option is more efficient, as it reduces costs of international settlements.
Real use cases:
- Tallysticks has created a blockchain-based platform that can process invoices and payments for logistics and other businesses in real time, potentially making it a basic platform for the factoring industry with a turnover of over 1 trillion dollars;
- Blockshipping creates a global container platform to manage transactional payments between supply chain participants as well as tracking containers in real time;
- Trade (a joint project between HSBC, Deutsche Bank, Nordea, KBC, Natixis, Rabobank, UniCredit, Santander and Societe Generale) has partnered with TradeLens and TradeShift to digitize shipping document flow and offer integrated services to global trade processors;
- Visa also saw great potential in the иlockchain and launched its B2B Connect payment service. With this solution, banks and other organizations will be able to digitally identify counterparties and conduct financial transactions within seconds instead of 2–5 days.
Launch of the freight market
In the current state, the freight market is inefficient and incomprehensible. There are no clear standards and rules that would address the issues of liability of the parties for compliance with the transactions and for fraud, whether explicit or implicit. In addition, this market is not transparent, which quite often leads to unpredictable changes in freight rates, despite the absence of significant changes in supply and demand, as, for example, in early 2019, when the market went into shock due to the rapid fall of bulk carrier tonnage rates.
The blockchain technology and smart contracts can be used to create a fair trading platform where companies can hire freight forwarders in the shortest possible time on clear and transparent terms. At the same time, since all terms of contracts will be predefined in the smart contracts, the level of responsibility of companies will increase, so it will come immediately in an automatic manner, rather than after long negotiations and/or arbitration court decisions.
The real use case: ShipChain is working to improve its logistics through blockchain technology. The system uses open source smart contracts that can be easily integrated into virtually all existing blockchain-based logistics solutions. These contracts are designed to support logistics operations and are aimed at creating a decentralized freight market as well as error tracking and theft prevention. ShipChain is part of the BiTA (Blockchain in Transport Alliance), through which more than 80% of the world’s freight traffic comes.
The big problem with supply chains is the low level of reliability of the information being verified, which is a direct consequence of the lack of transparency in the industry. For example, due to the lack of transparency in the formation of the cost of transportation (procurement, transportation, storage), many companies overpay for the delivery of their goods to the consumer, and due to the lack of ability of the shipper to control the delivery process, the market thrives hidden schemes, smuggling and counterfeiting.
Since all data can be stored in the blockchain, each member of the supply chain can at any time check the information for each vessel, container and/or cargo, which reduces the possibility of discrepancies in the documentation of different parties.
Since all data is stored in the siege, each member of the supply chain can at any time check the information for each vessel, container and / or cargo, which reduces the possibility of discrepancies in the documentation of different parties.
This will increase transparency in logistics:
- allowing parties to see evidence of past performance of the counterparty, including delays in delivery, payment, etc;
- reduce the possibility of discrepancies in documentation, for example, when the carrier and consignee misinterpret delivery time;
- enable micro-level control of the delivery process, which will reduce fraud, inaccuracies and counteract smuggling and hidden schemes.
The real use case: Provenance has created a BaaS solution that increases the transparency of delivery chains, gives access to important information to all participants (including end consumers) and will ensure fair compensation to participants in the logistics process in case of violation of their rights or breach of contract.
Solution of disputes
Every day operations worth more than 140 billion dollars are “frozen” due to disputes over payments in the logistics industry. For example, this happens when a consignor tells a transport company that it sent the wrong bill or when the parties forgot to specify who pays certain fees. Such discrepancies link cash flows, increase companies’ costs and reduce their liquidity. They are usually resolved by independent auditors who clarify the circumstances and give their recommendations, which usually takes up to 42 days.
If all the conditions and actions are recorded in the blockchain, this eliminates most of the problems in controversial situations. Participants of the conflict can check the necessary data in the siege and in accordance with the contract (or User Agreement) decide who is right and what to do.
The real use case: FedEx, another BiTA member, has launched a pilot solution to securely store shipping records through their service to use the data as a source of truth in the event of a dispute.
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