Achieving excellence in logistics involves working collaboratively with others to optimize the flow of physical goods as well as the complex flow of information and financial transactions. But today there is a significant amount of trapped value in logistics, largely stemming from the fragmented and competitive nature of the logistics industry. For example, in the US alone, it is estimated that there are over 500,000 individual trucking companies. With such a huge number of stakeholders involved in the supply chain, this often creates low transparency, unstandardized processes, data silos and diverse levels of technology adoption.
Many parts of the logistics value chain are also bound to manual processes mandated by regulatory authorities. For example, companies must oftentimes rely on manual data entry and paper-based documentation to adhere to customs processes. All this makes it difficult to track the provenance of goods and the status of shipments as they move along the supply chain, causing friction in global trade. Blockchain can potentially help to overcome these frictions in logistics and realize substantial gains in logistics process efficiency. This technology can also enable data transparency and access among relevant supply chain stakeholders, creating a single source of truth. In addition, the trust that is required between stakeholders to share information is enhanced by the intrinsic security mechanisms of Blockchain technology.
Furthermore, Blockchain can achieve cost savings by powering leaner, more automated, and error-free processes. As well as adding visibility and predictability to logistics operations, it can accelerate the physical flow of goods. Provenance tracking of goods can enable responsible and sustainable supply chains at scale and help to tackle product counterfeiting. Additionally, Blockchain-based solutions offer a potential for new logistics services and more innovative business models.
Faster and Leaner Logistics in Global Trade
Logistics is often considered the lifeblood of the modern world, with an estimated 90% of world trade carried out by the international shipping industry every year. But the logistics behind global trade is highly complex as it involves many parties often with conflicting interests and priorities as well as the use of different systems to track shipments. Therefore, achieving new efficiencies in trade logistics is likely to have a significant impact on the global economy. According to one estimate from the World Economic Forum, reducing supply chain barriers to trade could increase global gross domestic product (GDP) by nearly 5% and global trade by 15%.
Blockchain technology can help alleviate many of the frictions in global trade logistics including procurement, transportation management, track and trace, customs collaboration, and trade finance.
With over 50,000 merchant ships involved in the global shipping industry and multiple customs authorities regulating the passage of freight, a major area of focus for efficiency gains is ocean freight. Blockchain technology has huge potential to optimize the cost as well as time associated with trade documentation and administrative processing for ocean freight shipments.
One example that highlights the complexities behind ocean freight today is the estimate that a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, with more than 200 different interactions and communications among these parties.
To unlock efficiency in ocean freight, Maersk and IBM have started a venture to establish a global Blockchain-based system for digitizing trade workflows and end-to-end shipment tracking (see the following figure). The system allows each stakeholder in the supply chain to view the progress of goods through the supply chain, understanding where a container is in transit.
Stakeholders can also see the status of customs documents, and can view bills of lading and other data. Blockchain technology ensures secure data exchange and a tamper-proof repository for this documentation. The two companies expect this solution to track tens of millions of shipping containers annually. It has the potential to significantly reduce delays and fraud, which could lead to billions of dollars in savings in the logistics industry.
Ocean carrier company ZIM has conducted a pilot to digitize the actual bill of lading, often hailed as a ‘holy grail’ application in logistics. The bill of lading is one of the most important documents in ocean shipping, and it acts as a receipt and a contract for the goods being shipped. The information stored on a bill of lading is critical as it contains all necessary details such as the shipment description, quantity and destination, as well as how the goods must be handled and billed. During the trial of the Blockchain-based system developed by Wave, ZIM and pilot participants issued, transferred, and received original electronic documents successfully through the decentralized network.
The containers, shipped from China to Canada, were delivered to the importers (i.e., consignees) without a problem. Although still in the pilot phase, industry adoption of a digital bill of lading would be significant. It could greatly support supply chains in reducing costs, enabling error-free documentation and fast transfer of original documents.
Accenture is developing Blockchain-based system also focused on replacing the traditional bill of lading as well as facilitating a single source of truth for all supply chain stakeholders for freight inquiries up to the issuance of trade documents. Here, a decentralized network connects all parties in the supply chain and enables direct communication, eliminating the need to go through central entities and rely on intermediaries.
“Using Blockchain to replace the traditional bill of lading documentation to ship goods will drive millions of dollars in process efficiency and operational cost reduction benefits across the supply chain for multiple parties in the trade ecosystem including shippers, consignees, carriers, forwarders, ports, customs agencies, banks, and insurance companies”. — Adriana Diener, Global Freight & Logistics Lead at Accenture
