How Blockchain Can Lead The Logistics Industry Into The Realm Of Greater Transparency
Blockchain, the technology behind the bitcoin payment system and blockchain digital assets, has the potential to transform the logistics industry. Lack of visibility in the supply chain and documentary delays among other factors increase supply chain costs and increase business risks for parties involved in the trade.
Tokenization of the trade asset on the blockchain as well as digitally managing trade documents helps organization’s supply chains become transparent, tamper-proof, improves risk management and prevents any losses and costs arising from manipulation and system errors.
Nestle, the world’s biggest food producer, for example, has rolled out plans to adopt the blockchain technology for its supply chain.
This article seeks to highlight how blockchain offers solutions to pain points in the logistics industry through asset tokenization, smart contracts and decentralized applications.
Blockchain- Transforming the Logistics Industry
Clearly, the blockchain technology is set to bring major improvements to the logistics industry. Here’s how.
· Boosting visibility, trust, and efficiency
Trust in the logistics industry is largely affected by the lack of visibility into the in-transit shipments as well as documentary delays which increase the risks and costs in supply chains. Blockchain enables for tokenizing of the trade asset and digitally managing trade documents so that organizations are able to obtain delivery assurance and reduce supply chain risks and losses that come with document manipulation and errors.
Importers lack insight into possible en route delays, shipment damage due to bad weather, theft, containers docking at the wrong destinations, incomplete documentation, and congestions at the port among other factors that may cause delays or damage the supplied goods.
In addition to the challenge of visibility into the geographic location of the goods being shipped, suppliers and importers have the burden of monitoring shipping conditions particularly for perishable goods and temperature-sensitive goods like fresh flowers.
Deviations for the required conditions like temperature, humidity levels, and ventilation among others could increase the chances of spoilage and loss. A phytosanitary certificate at the port of origin can only certify the conditions of the goods before shipment while an inspection at the destination port may not tell the long-term effects of improper transportation conditions; this is a substantial risk.
And last but not least there is documentary fraud. It could be forging of documents, altering data in original documents, hiding contract violations, substituting substandard goods for quality goods.
An example is when an exporter loads cargo on a date that is later than that specified on the bill of lading to avoid peak season charges but predates the dates on the bill of lading so that they tally with those in the contract. There have been prior attempts to digitize logistical documents like bill of lading through electronic titles, telex release and other trading systems but these faced several technical, security and adoption challenges.
· The Promise of Blockchain
Using the blockchain network, enterprises would digitize their trade assets through crypto tokens to show the custody or ownership of the bearer. With the trade assets tokenized, the transfer of the trade assets to different transaction participants on the blockchain network could be made parallel to the physical movement of the trade assets thereby establishing a clear chain provenance.
An asset token, with regards to logistics, would be defined as a unit of the trading goods that are being transported. This process could be done when the goods are ready to be shipped or transferred by the exporter to the freight forwarder when the container/goods are loaded. The freight forwarder transfers the token to the carrier when the cargo is placed on shipment vessel, then to customs before customs clearance, then to inspection agencies and so on until the goods are delivered at the final port.
The true record of the transfer of the token can only be adopted on the blockchain through consensus. And since the records stored on the blockchain are immutable, they would provide a tamper-proof record of the delivery process as well as shipping conditions of the trade assets while in shipment.
While the goods are on transit, the different transaction participants could update the token holder on the progress and conditions of the in-transit goods through the blockchain in real-time. The transit routes, the duration of transit, data on transport conditions that could be captured by technologies like machine learning and artificial intelligence together with the internet of things among others.
Trade logistic documents can also be verified and issued on the blockchain by the relevant parties. Documents like custody transfer and the bill of lading can automatically be generated on the blockchain network using the data attributes of the underlying trade contracts and documents.
While attempts for a paperless logistics industry have had challenges reconciling an original bill of lading and the electronic copies, the blockchain network solution could easily solve this issue by virtue of its underlying network consensus mechanism that ensures all participants have access to a single final version of all data and documents.
Finally, all payments including custom fees, payments to service providers or payment to suppliers can be structured on the blockchain in the form of smart contracts which automatically initiate payments upon successful completion of service as verified on the blockchain.
Given all conditions for the contract are on the blockchain, any deviation from the conditions like different temperatures, different dates, etc. would mean adjustments to the contracts accordingly, therefore, eliminating any fraudulent activities.
· Blockchain and traceability, trust and provenance
Managing today’s complex and largely global supply chains in the logistics industry offers enterprises challenges of visibility, traceability and transparency across the chain. September 2013 saw several people in the US infected with strains of the listeria bacteria.
Significant precious time lapsed in between the time of infection, and time needed to identify the strains as well as identify the supplier. Unfortunately, with every passing minute, more people that bought the products were infected.
It was only until April 2016 that the supplier of the infected products voluntarily recalled the frozen food products in conjunction with Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC). Later, the recall was expanded to include 358 products that were sold through approximately 42 brands.
Blockchain’s ability to improve end-to-end visibility would greatly improve on traceability which is critical in crisis handling. For instance, if consumers fell ill around the same area, the common products the consumers bought could be analyzed as well as the retail outlets from where they bought them and once the product with infection is identified, blockchain can be used to audit the product’s trail including the source/origin of the product’s ingredients.
The point of contamination could easily be traced and authorities could track down all the products that have used the contaminated ingredients so that a recall of the products is made quickly. A good example is Walmart’s blockchain pilot program in China which helped trace a package of mangoes from their stores to a farm in just a few seconds. According to Frank Yiannas, Walmart’s vice president for food and safety,
Carrefour, European’s largest retailer has similarly used blockchain for tracing the production of free-range chicken in Central France, the Auvergne region. Consumers are able to use a smartphone to scan the code on the package and be able to obtain information pertaining to each stage of production including how, where and when the chicken was raised, what it fed on and where the meat was processed. Talk about end-to-end visibility, traceability and provenance!
Closing Thoughts
Blockchain and asset tokenization has an immense potential to improve the logistics industry. There are already industry giants like Nestle, eBay, Walmart, Carrefour and IBM among others who are already investing in blockchain for logistics.
And thanks to solutions such as DAPP BUILDER, early adopters can easily create smart contracts and decentralized applications that suit their particular use cases and, as a result, create competitive advantage and successfully deliver their logistics strategies.
