How Blockchain Can Address Trust and Transparency Concerns in Logistics

The key issue in logistics today is a lack of transparency and trust between counterparties. Companies try to intermediate the process to make it more or less transparent, which bloats both time and costs needed. With the help of smart contracts and digital ledgers, blockchain can disintermediate logistics and cope with its trust concerns. This post will unveil the details.

It Can Prevent the Insolvency Risk

In 2018, one in four British companies suffered from the insolvency problem. Usually, starting from one party going insolvent, the problem escalates more and more, involving new participants. Craig Fuller, CEO of TransRisk, comments on this problem: ‘Every single day there is $140 billion tied up in disputes for payments. The shippers end up saying, ‘You didn’t send me a proper bill.’ And the shipper sits and doesn’t pay it until that price is exact. It’s a dispute. It ties up cash flow and creates a real strain on the environment.’ With the help of its smart contracts, though, blockchain can protect the logistics industry from this risk.

If all the participants of the logistics process use the same blockchain, it is possible to predefine all the conditions that need to be carried out to start the delivery process. For instance, blockchain can check up the customer’s balance, freeze the necessary amount on her account, and trigger the payment once the cargo is shipped safely and in due time. In the case of some deviations, smart contracts will act in accordance with the pre-designed rules.

What’s important here is that blockchain data is visible for all the participants simultaneously, so no rules of the game can be retroactively changed.

It Can Detect Cargo Damages

While shipping, there are a lot of parties participating in the process. The cargo is shipped from one point to another, running a high risk to be damaged, tampered or lost somewhere en route.

To avoid this risk, companies hire intermediaries that are responsible for the quality of the shipped products and which are required to inform the stakeholders about the damage, if any. Such intermediaries make the logistic process considerably more expensive. In its turn, blockchain can disintermediate it, acting as a digital incorruptible ledger.

Let’s analyze how blockchain can facilitate this process using this example. Imagine that the supplier A ships cargo to the company B by means of the company C. Once C takes the cargo from A, both A’s and C’s employees confirm the quality of the product. At this stage, this information is confirmed and recorded by the blockchain system’s witness nodes, which means that no auditing intermediaries are required.

If any damage is detected, blockchain-driven smart contracts can automatically act in accordance with the pre-tailored rules. For instance, the system can return the frozen amount of money on the customer’s account, turn back the damaged cargo, impose fines, etc.

It Can Address Tax Evasion and Underinsurance Risks

If some of the logistic process participants evade taxes, this would threaten the entire chain. It means that all the parties require the proof of transparency in terms of tax compliance. The same applies to insurance estimation. If risks are underestimated, in case of failure someone would need to cover for the losses anyway. This is a point where a lot of disputes arise.

Blockchain can prevent tax evasion with its smart contracts, triggering the obligatory payments. As for insurance underestimation, witness nodes will affirm the cargo value avoiding any potential risks associated with this process.

Wrapping Up: Blockchain Prevents Risks

Blockchain can make the entire logistic process both highly secure and transparent. It allows not only tracking shipments but preventing the risks of insolvency, liabilities arising from damages, tax evasion, and underinsurance.

As logistic companies are interested in their own blockchain-backed software that will be in line with their operational models, it’s high time to seize this opportunity. With the help of the genEOS blockchain ecosystem, you can reduce your efforts on the development of a blockchain, digital ledgers, and smart contracts. The platform pre-designs not only this functionality but much more. So, try it out to become the one benefiting from the demand of the $1,171 billion logistics market.