Blockchain for Trade Logistics — A Hyperledger fabric use case.

Blockchain is one of the hottest technologies with venture capitalists are pouring in lot of money. The original blockchain concept got popularized by bitcoin (Satoshi Nakamoto and his paper). The concept of an immutable distributed ledger holds great deal of promise in a lot of use cases beyond fintech. In my previous article, I had mentioned a supply chain use case for blockchain that I was involved in at a large retailer. Another area very related to supply chain is “cross border trade. This one focuses on using blockchain for cross border trade, but when combined with the supply chain use case (that I had written about previously) provides a powerful end to end solution that can be applied to many industries.

In this global economy, no country (except for North Korea), is completely isolated from the rest of the world. Cross border trade has become the life blood of an increasingly globalized world. China has emerged as the world’s factory. Increasingly a lot of manufacturing is also moving to other low cost destinations in east Asia like Vietnam, Malaysia, Cambodia etc. The US and Euro zone continue to be the big markets for most of these products. Nearly 80% of the consumer products are moved across using Ocean Freight. IBM did a blockchain pilot with one of the largest Ocean Freight carriers in the World Maersk. This article describes the use case and provides additional insight into the use of blockchain to solve a real-world problem.

For a company like Maersk to move containers from a Port in Hong Kong or Singapore to Port of LA, there are lots and lots of parties that they must deal with. There are Exporters, Terminal Operators, Port Authorities, Freight Forwarders to name a few. Most of the paper work involved is all manual that is passed between these parties. The result is the time it takes to ship the products, delays, lack of visibility into where the paper work is etc. For the end customer of Maersk (retailers like Target or Walmart) it is furthermore frustrating as they have no visibility into when their products will arrive.

Here are the key parties involved in a cross border trade:

· Shipper

· Inland Transporter

· Port/Terminal Operator

· Customs/Govt Authorities

· Ocean Carrier(Transporter)

We have these both at the sending end (Export end) as well as the receiving end (Import end). There is paper work involved on both sides.

In terms of documents, in addition to the standard Packing list, there is also the bill of lading, export documentation, certificate of origination, shipping instructions, Hazmat declarations/certificates, cargo specific certificates, customs documentation to name a few.

In the current process, each of the parties involved have their own internal IT systems which function as system of records. Lots of these documents also tend to be manual, so it is not easy to track them online. Every party is waiting for documents to show up for them to take an action. As documents move from party to another it takes time as these must keyed into each party’s internal system (if any exists) and then transferred to the next party in the chain. In case of disputes, lot of time is spent on the phones trying to track the documents, look for clearances and approvals etc. As a result, when a consignment needs to be tracked thru the system it becomes a nightmare.

The following are the pain points for the various parties involved:

Shipper

· No visibility into when products will get on the ship and be en-route.

· Border delays due to lost/erroneous paperwork.

· Lot of point to point EDI

· No information on whether consignment has all the certificates and has been accepted by the port Authority and Customs

· May have to leverage the services of a freight forwarder to help at high costs

· Not sure why certain Fees and surcharges are being charged

· May have to carry additional safety stock as they are not sure how much inventory is going to be locked up in the ports/in-transit.

Customs/Govt Authorities

· Lot of manual paper work

· Lack of visibility into what shippers are shipping and when

· Lack of visibility into what products are arriving into ports and from where (till the paperwork shows up).

· Cannot plan for any contingencies, Risk mitigation etc. (e.g. Hazmat goods needing specific skills for inspection etc.)

Inland Transporter

· No visibility into when products are to be picked up and delivered.

· Is there need for special handling for Hazmat etc.

· Lot of point to point EDI

  • Hard to plan for truck and driver utilization with only 24 hrs. lead time on load pick up

Port/Terminal Authority

· Lot of manual paper work

· Lot of point to point EDI

· Hard to plan on labor and Crane utilization based on what shipments are coming and going

· Cannot plan for contingencies

· Lack of Visibility into products being shipped, lengthy custom clearances etc.

Ocean Carrier

· Lot of point to point EDI transactions

· Long vessel queues in Ports waiting for clearances from authorities

· Lack of visibility leading to poor vessel and crew utilization

· Mis-declared Cargo, Hazmat issues etc.

This is how the current process looks like:

Using blockchain, we can revolutionize this whole process and provide visibility to all the parties involved. They all rely on a trusted distributed ledger which is immutable. All the documents, certificates, custom clearances, approvals needed etc. are digitized and stored on the blockchain. Everyone has access to the same information within a few minutes of that document being approved and submitted to the ledger.

IBM did an initial pilot with Maersk by tracking a container for flowers being shipped from the port of Mombasa in Kenya to port of Rotterdam in the Netherlands. The IBM solution uses a permissioned blockchain based on hyperledger fabric. Hyperledger fabric is an open source blockchain (the project managed by the Linux foundation). The blockchain nodes were deployed on IBM cloud running a high security business network (HSBN) node. The HSBN runs a blockchain node as a Docker container running on LinuxONE utilizing the advanced encryption and security features that are inherent in the platform.

Permissioned ledgers tend to be faster than the open networks like Ethereum or Bitcoin as they do not rely on “Proof of Work” for consensus. As they work on other consensus mechanism like Zero Knowledge Proof and techniques like sharding to improve thruput, they could end up being potential platform options. Beyond transaction thruput, enterprises are also worried about security and confidentiality of their data, as well liability issues relating to data being resident on their node that does not belong to them. For enterprise customers, it is key that their transactions are kept confidential and separate from their competitor’s transactions. All the parties that can participate in a permissioned network are known. There is a governance model that is typically put in place for these networks where decisions about the network rules are made jointly. IBM typically plays a role of a network administrator.

IBM now offers a trade logistics solution built on blockchain (hyperledger fabric) . In addition to the open source blockchain platform (hyperledger fabric), IBM also provides a whole solution geared towards cross border trade. The solution at a high level includes:

· Certificate Management

· Shipping Information Pipeline and visibility

· Paperless Trade and Paperless trade configurator

· User Administration

· API’s for 3rd party value added solution providers.

IBM and Maersk have also developed a joint venture so that a neutral company can build and further develop the solution that can be taken to market. For more information on this joint venture see https://www-03.ibm.com/press/us/en/pressrelease/53602.wss

Here is the future state process on Blockchain

I hope this gives you a better appreciation of blockchain’s capabilities and can start thinking about applying it your own use cases.

Feel free to reach out to me if you have any questions or comments.