Transforming the Inefficiencies in Logistic Sector with Blockchain
The notoriously increasing amount of money at stake in the Logistic industry is reaching enormous heights day by day. Also, Global supply chains are overly complex, with a diverse set of stakeholders, varying interests, and many third-party intermediaries. The sole purpose of Logistic Management which is a part of Supply Chain Management (SCM) is to plan, implement, control the forward and reverse flow of goods, its storage, services, and most importantly the information between the points of origin to the points of consumption in order to meet the customer’s requirements. However, Blockchain Technology shows a great promise for dramatically improving the efficiency and reliability of supply chains in all industries. According to the International Data Corporation (IDC), Global spending on Blockchain solutions is forecast to reach $9.7 billion by 2021. And, the Logistics sector is just one potential customer to such change.
An approach to improvising the current scenario
To address the warehouse inefficiencies like overstocking, mis-shipments, lack of transparency, inventory count errors, and middleman markup, many companies are shifting their manual process mandated by regulatory authorities to fully automated involving minimal human interaction. For example, companies often times rely on manual data entry and paper-based documentation to adhere to customs process. All this makes it difficult to track the provenance of goods and status of shipments as they move along the supply chain, thereby causing friction in the Global trade. The Blockchain Technology can potentially help to overcome distractions in logistics and realize substantial gains in terms of profit to the company and ease in the approach of SCM. Furthermore, Blockchain can achieve cost savings by powering leaner, more automated and error-free processes. Additionally, Blockchain based solutions make way for new logistics services and have the potential to shake up the existing business models.
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. The two companies expect the solution to track tens of millions of shipping containers annually. The system allows its stakeholder in the supply chain to view the progress of goods through the supply chain and understand where a container is in transit. Blockchain technology ensures secure data exchange where the person can view Bill of Lading, the status of customs documents and other data. This is possible because of the intrinsic indestructible nature of the Blockchain’s distributed ledger. Also, Accenture is developing a Blockchain based system which is similarly focusing on replacing the traditional Bill of Lading as well as facilitating a single source which is true for all supply chain stakeholders for freight inquiries up to the issuance of trade documents. Here, an addition of a distributed network given by Blockchain, it will connect parties in the supply chain and enable direct communication which eliminates the need to go through central entities and reliable intermediaries across the regional borders. According to a press release, Adriana Diener, Global Freight and Logistics head at Accenture stated that the proven value of this project is surpassing expectations: “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”.
Stabilizing the unhinged Logistic work-process and its implementation
Current Logistics Sector estimates indicate that 10% of all freight invoices contain inaccurate data which leads to disputes and many other process inefficiencies in the logistics work-flow, especially in the oil and energy industry. Blockchain has a significant potential to increase efficiency along the entire logistics and settlement process including trade and finance. It may help to resolve disputes easily. As digitized documents and real-time shipment data become embedded in Blockchain based systems, this information can be used to enable smart contracts. The Supply chain contract is made and its conditions are written as code into a Blockchain. This contract is part of the Blockchain and is distributed across the network. Whenever there is a dispute, to check the validity of the reason the contract executes itself at the moment the conditions are met. Hence, the occurrence of a dispute of any sort can be easily detected and it’s trueness as well. Also, the contracted parties perform contractual obligations. One such prototype is designed by ShipChain. ShipChain has designed a comprehensive Blockchain based system to track and trace a product from the moment it leaves a factory to final delivery at the customer’s doorstep. The system is designed to encompass all methods of freight and there are plans to include an open API architecture that too can integrate with existing freight management software. The issue of lack of transparency is solved because all relevant supply chain information is recorded in an immutable Blockchain based database that can execute smart contracts once the conditions have been met. For example, a truck driver transmits confirmation of a successful delivery which is validated by the network via the smart contract. An element to automating the settlement process is through ShipChain’s digital currency called “Ship tokens”. Participants of ShipChain’s platform purchase these tokens in order to pay for freight and settle transactions on the platform.
The ShipChain Contract is an Ethereum EVM smart contract that can be duplicated and used by anyone to orchestrate a shipping escrow on the distributed ledger. The overall shipment completion will be stored on the main Ethereum Blockchain, and to keep costs low, individual tracking waypoints and load data can be stored and verified in an associated side-chain operating on the ShipChain Protocol, such as the one ShipChain Foundation will implement and maintain called ‘ShipChain Prime’. The smart contract is initiated once a shipment is placed. The contract includes hash sum signature of the delivery, information of beginning address, carriers used, number of items, weight, dimensions, and more. Anyone with a valid copy of these values can verify the signature and assert the validity of the contract on the main Ethereum Blockchain. This results in a more detailed Bill of Lading.
Blockchain Technology along with Smart Contracts can eventually support and encourage a better environmental policy in the Logistics sector by enhancing a transparent, secure, and hassle-free trade. The trade here not only includes goods to be exchanged, but also the warehouses where they are kept, their authenticity and the legal portions involving duties on them. Another name for this could be the ‘Smart Supply Chain Management System’ based on Blockchain Technology.
Contributed by – Shloka Bhalgat, a computer engineering graduate, blockchain writer and techie.