Freight Forwarders: Your Future is Blockchain

Freight Forwarders: Your Future is Blockchain

This is the second in our two-part series on blockchain and freight forwarding. Read part one here.

In last week's post we helped explain the basics of the blockchain and why it is poised to transform many components of the world economy (and why it’s much more than just Bitcoin hype). This week, we’re drilling down to explore why blockchain technology is well-suited to logistics in general, and ocean freight in particular.

After spending much time on this topic here at ColoadX, we’re more convinced than ever that the blockchain is a technology that cannot be ignored by freight forwarders or NVOCC’s.

The Basics of Blockchain

First, let’s review: A blockchain is simply a list of events or transactions, sometimes called a ledger. It is completely secure, and an entry cannot be changed once it’s been made. Whenever there is a business process composed of a series of steps involving two or more parties, they are recorded in this ledger, and only the parties involved can access them.

Right away, mention of “a list of events or transactions” should immediately call to mind logistics. It comprises one of the most complex series of events there is. Think of all the steps required to take something from raw material to an end-product at the last mile. There are dozens, often hundreds, and sometimes thousands of stages. Each step requires at least a two-way agreement between parties, each with its own economics, paperwork, regulatory issues, and physical limitations. Each step is dependent on the step before it, so if one link of the chain is broken, the entire chain fails. There’s basically no room for error.

Here’s where the benefits of the blockchain can transform logistics: by virtually eliminating the risk in each of those components, making for a supply chain that is totally secure, reliable, and far less prone to human error or the consequences of bad actors.

The Benefits of the Blockchain for Freight

To illustrate these benefits in practice, it’s helpful to refer to the recent announcement that Maersk and IBM will be collaborating for a blockchain initiative, which we wrote about here. Despite the flashy headline, few in our industry truly understood the implications of this (and to be fair, details have been scarce). But it’s worth breaking down the benefits of blockchain, and how they tie into the Maersk announcement.

Blockchain Technology is Secure

The blockchain is not protected by a traditional “permissions” system for access. In other words, it’s not just about having a password (not even a really long one). Getting access to a blockchain involves providing “proof of work” which inherently demonstrates your qualification to access the chain. A logistics juggernaut like Maersk has ample security concerns, as demonstrated by last year’s massive security breach. Anything that provides additional security will not just protect the integrity of Maersk’s own data, but will also give it an advantage against competing carriers, who may not be as secure.

Blockchain Technology is Trustworthy

The inherent security of blockchain technology doesn’t just protect it from bad actors. It also ensures data integrity: Everyone authorized for a chain is viewing the same data in the same order, with the guarantee that it has not been changed. You can see how this would be critical when tracking the flow of funds, goods, or services.

According to the IBM study, ocean freight shipping is growing ever-more complex, and inconsistent information interchange increases the risk of “blind spots” and fraud in clearance processes. Blockchain technology makes the freight’s entire history available on a standard platform, making it easier to assess various types of risk.

Blockchain Technology is Transparent

The same way a blockchain limits access from outsiders, it also provides reliable transparency to all parties to a transaction. This is especially important in complex, multi-step transactions where outcomes rely on having perfect information about what other parties are doing or have already done.

In the case of logistics, each “authority” (IBM’s catchall for forwarders, NVO’s, customs agents, port managers and the like) is aware of all details about their shipments, but only their shipments. That includes what the freight is, where it has been, where it’s going, the status of all paperwork, and who facilitated its transit.

Sharing the right information with the right people also means excluding the wrong people. There are no “secret participants.” To accomplish this you need to know who’s who, and who is a party to what components of any transaction. Both Maersk and IBM, for example, emphasize how a blockchain identifies (and gives access to) everyone needed for an ocean freight shipment.

A Blockchain is Decentralized

A blockchain is not a piece of software. There is no controlling authority or a “blockchain world headquarters.” There is no government, financial system, or outside entity that can interfere with a given blockchain unless it is already a party to its transactions.

The blockchain’s decentralized structure (if you can call it that) closely mirrors the reality of logistics. This is what Maersk and IBM mean when they say their goal is to “improve and digitize global trade and the supply chain.” Maersk noted that blockchain tech is “ideally suited to large networks of disparate partners.” That defines freight forwarding, down to the lack of global standardization.

Don’t Fear the Future of Logistics

We understand that, even if you’ve gained a clearer understanding of the blockchain and its possibilities, every detail raises as many questions as it answers. Blockchain technology is an ever-evolving concept, and its decentralized nature makes it particularly open to new approaches and applications. But that’s not a reason to be scared of it.

Instead, we should all view it as an opportunity to finally break through the technology paralysis that too often hurts our industry. A particular example is the blockchain’s ability to wean us off of traditional EDI (electronic data interchange). That’s the computer-to-computer exchange of information. Its main benefit is smoothing manual processes and dependencies on old technology that slow down communication and exchange (e.g. fax). But EDI has big drawbacks: it can be costly, especially for standardization and maintenance; it has a steeper learning curve because EDI has its own standards of documentation; and its not necessarily a great solution for small- to medium-sized freight professionals.

This can be the moment for freight forwarders and NVO’s to shine and leapfrog over other industries in technology adoption. Figuring out the blockchain may require us all to question assumptions and put on our thinking caps, but we believe that blockchain technology is not just Bitcoin hype.

It is a fundamental technology shift that will likely transform all elements of the economy. And since logistics is the common thread that connects all those elements, it will surely transform ocean freight as well.


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By: Fauad on March 29, 2018, 3:22 p.m.