Utilizing Blockchain in Logistics
This article is part of the series Use-Cases, brought to you by Crucible Insights, which provides perspectives on a range of topics related to blockchain use-cases and aims to stimulate constructive discussion within the CrucibleDAO community.
What is blockchain and what are smart contracts?
This article assumes that the reader has a basic understanding of blockchain and smart contracts. If not, we encourage you to check out the fundamentals online before reading this article.
Adopting blockchain technology and smart contracts in logistics and smart shipping brings a range of benefits, including greater transparency, traceability, and security. Likewise, blockchain can also optimize supply chain management by providing real-time data to all stakeholders. This article seeks to shine light on some of the advantages blockchain technology provides for the logistics industry.
The State of Logistics & Global Challenges
The logistics industry continues to become increasingly complex, with various parties directly or indirectly being involved in supply chains. Such complexities have created challenges within communication and end-to-end visibility, which has rendered logistical processes inefficient in many cases. Simultaneously, expectations of all participants in the supply chain related to transparency, reliability, and service are increasing — spurred by the ramifications of the COVID-19 Pandemic, impact of globalization and demand, and the ensuing conflict in Ukraine.
More than ever, logistical processes involving multiple parties necessitates joint execution across all steps. Today, the majority of collaboration is facilitated manually and offline, which regularly creates redundancies and mistakes. In this context, logistics actors face challenges related to sharing information along the supply chain securely.
This is key in several ways:
Transparency: Information exchange to support supply chain planning & controlling e.g., production or distribution
Speed and Efficiency: Ensuring the correct goods are delivered to the right place and the right time through digital and efficient processes e.g., validating the origin of a consignment
Traceability: Reconstructing the origin and movement of commodities, as well as tracking materials at each level of the value chain (including proof-of-location, audit trails, and certifications)
Payment: Transferring money to suppliers efficiently and with reliable documentation.
The Relevance of Blockchain for Logistics
Optimisation in areas of the supply chain can only be grasped if parties work together by sharing data to create transparency. In today’s world, this is a difficult task given data from transactions between parties is usually stored individually with no complete overview. On top of this, data exchanges between parties typically bring trust issues that make collaboration difficult.
Contrastingly, blockchain offers an automated network where records are shared and ownership is universal amongst all parties. The technology can address key challenges by producing an encrypted digital record that monitors goods at every stage in the supply chain. It can make any abnormalities that may disrupt a shipment evident, allowing businesses to rectify problems immediately.
It can also automate operations while making it easier to authenticate items, eliminating paperwork and facilitating end-to-end traceability. Critically, blockchain helps organizations to securely share data while also achieving common goals more effectively.
Outlined below are some of the benefits blockchain can provide within the logistics industry…
Enhance Supply Chain Transparency and Traceability
Provide end-to-end transparency: Blockchain provides a single source of truth by integrating data from all participants in the supply chain
Monitor Performance: Blockchain-based monitoring of performance history of carriers and supplies provides “trustworthy” information
Confirm Provenance: Blockchain provides a proof-of-origin along with assurance of compliance and safety standard throughout the whole supply chain
Increase real-time visibility: Blockchain-based transparency provides real-time information on events and transportation
Facilitate Security, Immutability, and Authenticity
Authenticate data & documents: Blockchain can provide a secure and encrypted platform to exchange data due to its immutable characteristics provided by cryptography
Fraud Detection: All transactions are visible to participants and nothing can be removed without detection. This can remove areas where fraud occurs e.g., double brokering
Prevent Theft: Smart contracts can contain detailed information and rules, such as photo ID requirements for pick-up or delivery, improving security.
Remove Process Complexity
Eliminate intermediaries: Blockchain can replace the role of the middleman by bringing trustless trust into the supply chain ecosystem and allowing peer-to-peer models
Improve quality assurance: All organizations involved in transactions may assess and validate data
Increase automation: Processes such as payments, tariffs, transfer of ownership, settlement of tariffs, or cargo checks may be automated through the use of smart contracts.
Improve Operational Efficiencies
Improved compliance: Blockchain can used alongside Electronic Logging Devices (ELDs) or Internet of Things (IOT) devices, which sends real time data
Reduce Transaction Cost: Via consensus validation, blockchain can ensure repeated transactions are avoided as well as process errors by verifying each transaction
Reduce Human Error: Smart contracts reduce the potential for human errors and are faster given their utility as an agent of automation.
Where to?
As made evident by the above use-cases and benefits, the logistics industry is an attractive industry for blockchain implementation. However, stakeholders are still awaiting blockchain solutions that are commercially viable and deployable at scale. Complimenting this, is the mistrust and misunderstanding of blockchain technology and its many applications — instilled by the hype.
However, waiting for a perfect, one-size-fits-all solution may not be the best strategy, especially considering legacy processes are often difficult to disrupt. Instead, logistics and supply chain monoliths ought to lay a groundwork, experiment, reiterate current solutions, and spur disruption. After all, the increasing global competition and demand is likely to necessitate this.
Learn more about how blockchain will impact supply chains:
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