Will Blockchain Create a Digital Divide in Shipping?

Competition without standards could fragment blockchain in shipping

On November 6, 2018 nine leading ocean carriers and terminal operators announced that they are forming a consortium to develop the Global Shipping Business Network (GSBN), an open digital platform based on blockchain technology.

The new consortium advances the application of blockchain technology in supply chains — but is also highlights the dangers of a “Betamax versus VHS” fight that creates inefficiencies by forcing users to navigate different systems.

A blockchain is a distributed database that can store data in a permanent, transparent and shared way. It has the potential to solve trust issues and improve transactional efficiency through the elimination of intermediaries and the automation of processes.

The GSBN platform is using technology provided by software solutions provider CargoSmart to “establish a digital baseline that aims to connect stakeholders, including carriers, terminal operators, customs agencies, shippers, and logistics service providers to enable collaborative innovation and digital transformation in the supply chain.”

Using blockchain to streamline shipping documentation is one of the most promising applications of the technology in the supply chain domain. Unwieldy, error-prone paper documents such as bills of lading are inefficient and costly, especially as digitalization continues to make inroads into other areas of supply chain management.

These inefficiencies were discussed at the MIT CTL Blockchain Roundtable on October 9–10, 2018. For example, a shipping company described how seven to 10 copies of a traditional bill of lading are created and distributed to multiple parties such as the carrier, overseas consignee and destination port. If the carrier loses the document, the legal process required to replace it can delay shipments for days or weeks.

Blockchain could eliminate or at least mitigate disruptions like these by providing a trustworthy, commonly shared digital system of record that is almost tamper-proof. Such a system would replace the paper trail that impedes trade transactions.

It’s an enticing vision; but there are some formidable hurdles to overcome before it can be realized.

Probably the most difficult hurdle is a lack of common standards and systems for the entire container shipping industry. If the GSBN system develops in isolation, it will compete with TradeLens, the blockchain-enabled platform for shipping that is led by IBM and Maersk, as well as other emerging platforms. The resultant fragmentation could create — rather than eradicate — information silos.

Such a scenario is reminiscent of the “Betamax versus VHS” fight in the 1970s, when these two videotape format standards competed with each other. Betamax lost the battle and became obsolete.

The complexity of shipping documentation is another challenge. An ocean carrier at the MIT CTL roundtable illustrated how difficult it can be to change the industry’s deeply entrenched documentary procedures. The U.S. Coast Guard imposed a relatively simple requirement for specifying the verified weight of shipping containers, that added one bit of data to existing paperwork. The industry rushed to comply, but it took an entire year to meet the requirement.

In an interview with the Journal of Commerce, Lionel Louie, CargoSmart’s Chief Commercial Officer, emphasized that to succeed blockchains need many participants, widely accepted use cases that delivery value, and interoperability. The intention of the GSBN initiative is to build a platform that enables members to connect with other systems and develop applications of their own. In effect, to exploit blockchain’s immutability and trustworthiness to find ways to deliver value.

An example cited by Louie is a link to a trade finance platform provided by a bank. The bank might not trust a merchant in a particular country, but the carrier has established a trusting relationship with the merchant over a number of years. So, the database could be used to overcome that trust barrier at the bank end of the transaction, thereby removing a transactional speed bump.

However, Louie acknowledged that in the short-term participants might have to deal with multiple platforms.

If this problem turns out to be more than short-term, it could undermine the rationale for using blockchain technology in the first place. Indeed, it can be argued that a distributed, cloud-based system could provide a solution that is just as resilient and more efficient. Interestingly, the GSBN initiative chose to call its fledgling system a business network — not a shipping blockchain network.

Blockchain does offer some important capabilities. A key one is that the technology can guarantee uniqueness. When a bill of lading is registered on the system, it becomes a unique document and retains this characteristic as it is updated and moves through the supply chain.

But to reach its full potential, perhaps the development of blockchain platforms for shipping needs to be a supranational — not a purely commercial — effort at this critical stage. Maybe a UN trade body is better placed to steer the emergence of blockchain-enabled technology in shipping? The involvement of such an organization would be at a global level, so as not to stifle private sector innovation.

The stakes are high: increasing the efficiency of world trade. Let’s not miss this opportunity due to infighting between competing industry consortia.

This article was written by Road Adland, Visiting Scholar, MIT Center for Transportation & Logistics (roaaad@mit.edu), and Ken Cottrill, Global Communications Consultant, MIT Center for Transportation & Logistics (kencott@mit.edu). The authors are members of the MIT CTL Blockchain Research Group.