How blockchain could help logistics industry save $38 billion per year
Or the journey of marbled beef from Australia to the United States
IBM estimates that the implementation of blockchain could save the logistics industry $38 billion. IBM and Maersk have already carried out a test case using a batch of avocados shipped from Mombasa to Rotterdam. The calculated costs of the shipping container itself is more than $2,000. The cost of associated paperwork comes to $300–15% — 20% of total costs. These costs can be reduced to zero by distributed ledger technology. The final savings for the industry are calculated with due regard to the fact that annual global traffic is about 70 million containers.
Let us take the example of red meat transportation from Australia to the United States to illustrate the opportunities offered by the CREDITS blockchain platform.
Industry in numbers
Beef exports from Australia in 2016–17 broken down by country
Australia ranks among the world’s top three beef suppliers. Some fascinating numbers were published by Meat and Livestock Australia (MLA). Overall, the cattle sector was valued at $116.48 billion in 2016–17. A total of 47,021 farms are in place, with roughly 200,000 people employed. Besides, Oz is home to hundreds of meat processing plants.
In the reporting period, Australia produced more than 2.07 million tonnes of beef on a carcass weight equivalent basis. 68% were exported to 77 countries worldwide. Exports also include 907,965 heads of livestock. The aggregate cost of red meat supplies hit $5.3 billion; livestock, $0.9 billion.
Unlike other largest exporters (India and Brazil), Australia is unable to offer competitive advantages, such as proximity to markets and cheap workforce. The country has to rely on product quality and traceability, as well as supply chain efficiency.
Challenges and problems facing the industry
The logistics of red meat supplies from Australia is discrete and leverages the entire range of transport modes (road, rail, air, and sea). Each element of the chain employs its own local system (ERP, CRM, EDM, BPM, etc.). Communication among these elements relies on the analog (i.e. conventional) method associated with hard-copy paperwork — facsimile, couriers, post, face-to-face meetings.
Stacking all papers accompanying a batch would leave us with an equivalent of all volumes of Leo Tolstoy’s War and Peace. Each carrier requires several copies of consignment notes, insurance policies, and loading/unloading contracts. A declaration is required for customs clearance purposes. Not to mention a packing list, shipping specifications, an invoice (specifications), quality and origin certificates, bills of health and veterinary certificates. That said, part of information is stored in numerous messengers, e-mail, in hard copy, etc.
- Information about freight movements goes through the supply chain elements with a delay. Possible implications include planning and forecasting constraints; delayed payment for delivered product or overproduction under a canceled contract.
- Isolation of internal accounting systems. For stock levels in the supply chain to be clarified, all of its elements should update the details concerning the same element in their respective systems.
- All payments among the chain participants go through the bank with all that entails: high fees, extra time to settle and clear money transfers.
- Low product traceability can possibly result in counterfeit or infected meat being found in a batch.
- High costs associated with hard-copy paperwork.
Thorny path of beef from producer to customer
Let us consider the logistics of EC Throsby, an accredited export beef processing plant located at a major highway intersection near Singleton. The plant employs 250 people. Its annual turnover exceeds $250 million. Weekly traffic is 35 containers (B-double standard) with regard to export through the port of Sydney. A total of 46 weeks per year.
Task number one is delivering containers to a railway station in Newcastle, New South Wales, which is 41 km away. Driving route runs through New England Highway and Hunter Expressway. The next task is shipping containers about 171 km away by rail to Port Botany, Sydney. Then cargo is carried by sea to the Port of Los Angeles, which takes up an average of 26 days.
Both ports suffer from clumsy infrastructure and bureaucracy. Containers spend time stuck in queues for customs clearance, E. coli and Salmonella sampling, label approval, and marking conformity assessment.
That done, meat is carried by road and rail to customers — retailers and restaurants. An average of 30 entities are involved in this chain (producer, logistics company, government agencies, banks, etc.). They exchange roughly 200 paper (documented) messages. Other issues include a diversity of codes and numbers assigned to the same container in different ERP systems, e.g., customs numbers according to a declaration, track-and-trace codes from shipping companies, etc.
Solution from CREDITS — logistics DApp
“Blockchain is capable of covering meat logistics as a whole, ranging from EC Throsby’s plant up to U. S. customers, end consumers included,” Igor Chugunov, CEO at CREDITS, says with certainty. “It’ll be delivered through the use of a decentralized app on the CREDITS platform.”
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The key distinctive characteristics of CREDITS are advanced smart contracts with a schedule and cycle programming option; the highest possible transaction speeds of up to 1 million per second and processing speeds of at least 0.01 of a second per transaction; low transaction fees, which can be as low as $0.001; 90% data compression ratio for saving disk space at nodes.
All members of the chain will be connected to the decentralized logistics app. Customs, carriers — everyone will become blockchain nodes with varying levels of data access. Everybody will be using gadgets with a preinstalled public key for information viewing. A private key will enable participants to make their own entry in the ledger or close a transaction using a digital signature.
How will this work?
A duly authorized person of EC Throsby prepares products for shipment and documents a packing list in the smart contract. This initiates the process of export approval (in digital format) by the Australian government agencies.
The same smart contract sends to Botany status updates in respect of sanitary inspection of meat, container sealing, cargo receipt by the logistics company, insurance, and approval by the customs. All documents and actions are shared by, and available to, all elements of the chain. This will make it possible to trace the whereabouts of meat and identify who owns it at the moment and what our next steps should be on this path. Smart contract also checks the certificates entered by third parties.
Producer can tag cargo, for example with a crypto-anchor. Crypto-anchor can be equipped with a temperature sensor for cooled/frozen goods monitoring purposes or a GPS sensor that is able to signal unauthorized package openings. This information is recorded on the blockchain.
Producer-customer interaction works like this. Before goods are shipped, smart contract locks the sum specified in the contract in the client’s wallet, which is fixed on the blockchain. After the client receives products from the carrier, funds are transferred to the producer’s wallet. Smart contract can be amended by adding additional terms and conditions: considerable delivery delay — the buyer receives a refund; the client fails to collect cargo when due — a fine is collected.
It is also worth mentioning that end consumers can trace the history of meat by simply pointing their smartphone at the package and reading the QR code or the RFID tag.
Seven benefits offered by CREDITS DApp
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All documents and document approval by the duly authorized person are moved to a distributed ledger. This kind of approach implies zero hard-copy paperwork.
All files are integrated into a single system — the whole range of freight shipping documentation in the same format. In other words, all bills of lading, waybills, declarations, certificates, no matter who the owner is, occupy their respective positions and can be publicly available.
Data is updated in real time at all nodes at a time. This will make it possible to synchronize the operation of all functions and entities involved and to improve forecasting and planning accuracy, thus causing overall cost reduction.
The chain is not subordinate to any central regulatory authority. It is extremely high-performing, scalable, and is not exposed to breaks or single server cyberattacks. Possible outcomes include a dramatic reduction in fraud, illegal or unethical practices.
Decrease in the number of intermediaries and procedures associated with analog interactions. The elimination of multiple data entries onto the system, thus reducing the time to process it.
One-off information update for all network members. No chance to falsify or lose any documentation. No corruption risks, no human factor.
The opportunities of integrating automatic triggers and using data from the IoT sensors, thus improving response while reducing effort. Transition will also make it possible to log changes in the external conditions that are critical to a certain product type.
There are a number of barriers that hamper the final implementation of this technology in the logistics industry. There is a need for support for all chain elements involved in the processes of entities and functions, key 3PL providers. Furthermore, launch will be limited to the number of countries, customs and port authorities wishing to adopt this new system.
- The necessity of making DApp as easy-to-use as possible in order to facilitate transition for clients
- Integration with SCM Finance and GS1
- Adaptation to the import and export policies of specific countries
- The need for teaching all participants in the export and import process to use DApp
Blockchain is an innovative and improved method of tracing product supplies since all participants in the logistics supply chain store a live copy of all data without a central server. Every new entry on the ledger is immediately available for viewing by participants, they can capture what is going on with the cargo, where it is at the moment, and can rest assured that no one has interfered in or disturbed the process. Step by step, conventional workflow goes digital, which allows a faster information flow and gives rise to cost savings.