Blockchain for trucking: Hype or happening?
There’s been a lot of interest in where blockchain technology might intersect with logistics. Fueled by speculation about cryptocurrencies, much of the conversation has been conjecture about how the transportation of goods and materials can benefit from a transparent and collaborative network powered by blockchain.
The basic theory behind blockchain is that it is a distributed ledger. Any data written to the ledger cannot be changed — it is immutable. The blockchain is also programmable, so that when certain data gets added to blockchain, a predefined series of events can happen in what is known as a “smart contract.”
Let’s use a concrete example. Today, when a shipper issues a tender to a carrier, it’s done via a 204 EDI transaction. Instead of sending that 204 message to the carrier, the shipper would write the transaction to a public blockchain.
The carrier would then have its logic automatically run on the blockchain to decide whether or not to accept or reject the load. This transaction would replace the 990 EDI response and would be written to the blockchain instead.
The theory is that the transactions on the blockchain would be visible to everyone in the private/public blockchain network.
Within logistics, the appeal of the technology is that the history of freight moves is transparent. The fundamental value proposition being pursued by newly-formed groups like the Blockchain in Transport Alliance is translating more streamlined record keeping into efficiency gains.
“As products change hands across a supply chain from manufacture to sale,” explains one recent CB Insights report, “the transactions can be documented in a permanent decentralized record — reducing time delays, added costs, and human errors.”
As a kind of business record database on steroids, blockchain and its embedded verification network stands to impact logistics in several ways:
- Authenticating the people and products that pass through various stages of the supply chain
- Verifying the financial standing of buyers, sellers, lenders and borrowers
- Streamlining business functions like contract management and dispute resolution by providing a neutral record of transactions visible to all parties
Still, such a scenario relies on successfully navigating a number of potential roadblocks.
One refrain gaining traction among trucking executives is that blockchain is really “a solution looking for a problem.” In other words, securing industrywide buy-in is likely going to depend on identifying exactly which existing pain points the technology stands to resolve.
A few fundamental questions:
- What is the incentive for a shipper, carrier, or 3PL to put their freight movements on a public network?
- Does it make sense for the ownership of key data to be decentralized?
- Why is it important for freight movement transactions to be immutable?
The business case for blockchain
Unlike technologies such as electrification or vehicle-to-vehicle communication systems, the biggest barrier to blockchain adoption in trucking isn’t technical; it’s the question of whether a competitive industry can become more collaborative to harness potential collective gains.
The real challenge in applying blockchain at scale in the logistics sector is likely to lie in aligning incentive structures for shippers, carriers and other stakeholders. Agreement on set standards for blockchain is the first imperative, along with industry-wide adoption of such standards.
While it remains early days for forecasting the potential costs and savings associated with blockchain in different industries, analysts at Bain & Company predict that the technology could save financial firms alone some $15–35 billion a year by reducing redundant or error-prone manual processes.
“Firms will also be able to quickly and less expensively harness reference data that is both richer in detail and more fully reconciled,” the Bain report adds. “That should create opportunities for growth and product innovation.”
Logistics-specific use cases also provide a reason for businesses in the industry to consider buying into blockchain.
Shifting the industry closer to smart contracts, potentially freeing up billions of dollars tied up in pending transactions, would be one big bonus for carriers in search of liquidity. Reluctance wouldn’t be hard to foresee, though, from customers who currently benefit from longer billing cycles. (Blockchain’s built-in arbitration system could also help instantly resolve payment disputes, since all transaction records would be viewable by all parties.)
Also in the category of reducing friction in freight payments is the possibility of adding trust to verification in factoring with the help of blockchain. While factoring companies stand to benefit from having a public ledger, they aren’t in the position to push blockchain adoption.
In addition to increasing visibility into a range of relevant records — asset ownership history, maintenance and performance records, for instance — another benefit of decentralized data ownership could be unlocking new revenue streams.
Digital deja vu
While blockchain may seem like a conceptual quagmire all its own, there is at least one reference point in recent logistics history that could help chart the technology’s trajectory in trucking.
Just look at the adoption — and barriers to adoption — for digital business records shared through Electronic Data Interchange (EDI) as a proxy for how blockchain may fare.
Back in the 1960s, EDI was created to replace paper-based business transactions. The idea seems simple now, but it was revolutionary at the time; where people once filled out forms and then mailed or faxed them, information would be entered into a program and sent securely anywhere in the world.
While blockchain and EDI are by definition very different technologies, they are also similar in several ways:
- Both can be used to send information
- Both can be used to automate the shipment lifecycle
- Both are meant to replace document-driven and manual processes.
Still, EDI and blockchain also differ in a number of important ways:
- EDI is not public, limiting communication to two involved parties
- The logic or smart contracts embedded within blockchain are public and automatically executed, whereas the logic or triggers for EDI are embedded within a TMS or ERP hidden from the public
- There is not (yet) a standard format for blockchain transactions
- In order to communicate with external companies via EDI, organizations often need to integrate with a Value Added Network, a prerequisite not needed with blockchain
EDI has succeeded in spurring large shippers like Walmart to mandate that carriers and logistics partners use the technology, creating a demand-side case for adoption. Still, day-to-day challenges remain. The process of setting up new EDI feeds to communicate with partners is long and painful.
Data fragmentation and non-adherence to standards is really the main inhibitor of ubiquitous EDI adoption. Since each shipper can add EDI segments that are unique to individual business requirements, significant custom development becomes necessary for each new partner who wants to send data. It’s expensive to implement and, simply put, EDI doesn’t scale.
Blockchain shares this problem — and then some. The technology is more malleable than EDI, and enterprises will likely look to take advantage of this to encode as much information as possible in chains of records. Data, logic and images of BOLs/PODs are just a few examples of potential blockchain inputs.
In order for blockchain to be successful, there will need to be a standard established so that companies can implement the technology once and then reliably and securely communicate with many different vendors.
Blockchain advocates could learn from the history of EDI to build for adaptable use among many different vendors, but the panacea of truly open and accessible digital records isn’t likely to materialize without deliberate collaboration from a range of players throughout the supply chain.
Interested in learning more about trucking tech? Meet the LoadDocs team, try out a free product demo or drop us a line.
