Blockchain In Logistics

Updated: Feb 8, 2019

Achieving excellence in logistics involves working collaboratively with others to optimize the flow of physical goods as well as the complex flow of information and financial transactions. But today there is a significant amount of trapped value in logistics, largely stemming from the fragmented and competitive nature of the logistics industry. For example, in the US alone, it is estimated that there are over 500,000 individual trucking companies. With such a huge number of stakeholders involved in the supply chain, this often creates low transparency, unstandardized processes, data silos and diverse levels of technology adoption.

Many parts of the logistics value chain are also bound to manual processes mandated by regulatory authorities. For example, companies must oftentimes rely on manual data entry and paper-based documentation to adhere to customs processes. All this makes it difficult to track the provenance of goods and the status of shipments as they move along the supply chain, causing friction in global trade. Blockchain can potentially help to overcome these frictions in logistics and realize substantial gains in logistics process efficiency. This technology can also enable data transparency and access among relevant supply chain stakeholders, creating a single source of truth. In addition, the trust that is required between stakeholders to share information is enhanced by the intrinsic security mechanisms of Blockchain technology.

Furthermore, Blockchain can achieve cost savings by powering leaner, more automated, and error-free processes. As well as adding visibility and predictability to logistics operations, it can accelerate the physical flow of goods. Provenance tracking of goods can enable responsible and sustainable supply chains at scale and help to tackle product counterfeiting. Additionally, Blockchain-based solutions offer potential for new logistics services and more innovative business models.

Faster and Leaner Logistics in Global Trade

Logistics is often considered the lifeblood of the modern world, with an estimated 90% of world trade carried out by the international shipping industry every year. But the logistics behind global trade is highly complex as it involves many parties often with conflicting interests and priorities as well as the use of different systems to track shipments. Therefore, achieving new efficiencies in trade logistics is likely to have significant impact on the global economy. According to one estimate from the World Economic Forum, reducing supply chain barriers to trade could increase global gross domestic product (GDP) by nearly 5% and global trade by 15%.

Blockchain technology can help alleviate many of the frictions in global trade logistics including procurement, transportation management, track and trace, customs collaboration, and trade finance.

With over 50,000 merchant ships involved in the global shipping industry and multiple customs authorities regulating the passage of freight, a major area of focus for efficiency gains is ocean freight. Blockchain technology has huge potential to optimize the cost as well as time associated with trade documentation and administrative processing for ocean freight shipments.

One example that highlights the complexities behind ocean freight today is the estimate that a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, with more than 200 different interactions and communications among these parties.

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 (see the following figure). The system allows each stakeholder in the supply chain to view the progress of goods through the supply chain, understanding where a container is in transit.

Stakeholders can also see the status of customs documents, and can view bills of lading and other data. Blockchain technology ensures secure data exchange and a tamper-proof repository for this documentation. The two companies expect this solution to track tens of millions of shipping containers annually. It has the potential to significantly reduce delays and fraud, which could lead to billions of dollars in savings in the logistics industry.

Ocean carrier company ZIM has conducted a pilot to digitize the actual bill of lading, often hailed as a ‘holy grail’ application in logistics. The bill of lading is one of the most important documents in ocean shipping, and it acts as a receipt and a contract for the goods being shipped. The information stored on a bill of lading is critical as it contains all necessary details such as the shipment description, quantity and destination, as well as how the goods must be handled and billed. During the trial of Blockchain-based system developed by Wave, ZIM and pilot participants issued, transferred, and received original electronic documents successfully through the decentralized network.

The containers, shipped from China to Canada, were delivered to the importers (i.e., consignees) without a problem. Although still in pilot phase, industry adoption of a digital bill of lading would be significant. It could greatly support supply chains in reducing costs, enabling error-free documentation and fast transfer of original documents.

Accenture is developing Blockchain-based system also focused on replacing the traditional bill of lading as well as facilitating a single source of truth for all supply chain stakeholders for freight inquiries up to issuance of trade documents. Here, a decentralized network connects all parties in the supply chain and enables direct communication, eliminating the need to go through central entities and rely on intermediaries.

“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”. - Adriana Diener, Global Freight & Logistics Lead at Accenture

Improving Transparency and Traceability in Supply Chains

Many projects are underway using Blockchain technology to improve supply chain transparency and monitor provenance. These initiatives amass data about how goods are made, where they come from, and how they are managed; this information is stored in the Blockchain-based system. This means that the data becomes permanent and easily shared, giving supply chain players more comprehensive track-and-trace capabilities than ever before.

Companies can use this information to provide proof of legitimacy for products in pharmaceutical shipments, for example, and proof of authenticity for luxury goods. These initiatives also deliver consumer benefits – people can find out more about the products they are buying, for example, whether a product has been ethically sourced, is an original item, and has been preserved in the correct conditions.

One key application is the use of Blockchain technology to combat a major challenge in the world today: the counterfeiting of drugs and false medication. According to Interpol, around 1 million people each year die from counterfeit drugs, 50% of pharmaceutical products sold through rogue websites are considered fake, and up to 30% of pharmaceutical products sold in emerging markets are counterfeit. To answer this challenge, DHL and Accenture are driving Blockchain-based serialization project providing sophisticated track-and-trace capabilities to the pharmaceutical industry.

Pharmaceutical serialization is the process of assigning a unique identity (e.g., a serial number) to each sealable unit, which is then linked to critical information about the product’s origin, batch number, and expiration date. Serialization effectively enables a unit to be tracked at virtually any moment, and traced to its location at any stage of its lifecycle. A key serialization challenge is maintaining traceability and transparency especially when these units are repackaged or aggregated from unit to case to pallet for logistics purposes and then disaggregated back down to unit level for consumption.

The DHL/Accenture proof-of-concept was established to overcome this and other challenges by demonstrating the effectiveness of Blockchain technology in product verification. The aim is to show that pharmaceutical products have come from legitimate manufacturers, are not counterfeit, and have been correctly handled throughout their journey from origin to consumer. Most importantly, this initiative proves how end customers can verify the legitimacy and integrity of pharmaceutical products, especially compliance with handling requirements. This not only reassures the end customer at the point of purchase that their medicines are genuine and in perfect condition, but has potentially life-saving implications.

To achieve this, the partners have established Blockchain-based track-and-trace serialization prototype comprising a global network of nodes across six geographies. The system comprehensively documents each step that a pharmaceutical product takes on its way to the store shelf and eventually the consumer (see the figure on next page). The prototype was a lab performance simulation that demonstrated how Blockchain technology could handle volumes of more than 7 billion unique pharmaceutical serial numbers and over 1,500 transactions per second.

The project illustrated how Blockchain can be used to capture all logistics activities relating to an item of medication – from production to purchase – and ensure this information is made secure, transparent, and immediately available. “Our proof of concept demonstrated the opportunities blockchain presents in the fight against counterfeit pharmaceutical goods. Together with our partners we are actively refining the solution as well as working with key industry stakeholders to operationalize the concept” states Keith Turner, CIO Chief Development Office at DHL Supply Chain.

In the consumer goods and retail industry, companies like Unilever and Walmart are exploring the use of Blockchain technology to improve supply chain transparency and to track provenance. Walmart is focusing specifically on food tracking, traceability, and safety.

Together with partners, Walmart has conducted Blockchain test designed to trace the origin and care of food products such as pork from China and mangoes from Mexico. To begin with, this initiative documented the producer of each specified food product so that Walmart can easily address any case of contamination, should this arise. Secondly, the test put mechanisms in place to identify and rectify the improper care of food throughout the journey from farm to store. For example, since meat shipments must not rise above a certain temperature, the test took temperature data from sensors attached to the food products and committed this data to the Blockchain-based system. From there, automated quality assurance processes notified relevant parties in the event of suboptimal transport conditions. Since launching this test, Walmart has also announced the creation of Blockchain Food Safety Alliance, an extensive partnership to apply tracking, traceability, and safety benefits to food supply chains in China.

Moving forward, a key requirement for track-and-trace applications will be to adopt more secure and intelligent forms of digital identity for each physical product – moving from the provision of a passive barcode or serial number to, for example, enabling interactivity with the use of Internet of Things (IoT) sensors. Smart devices can be securely tied to or embedded in the physical product to autonomously record and transmit data about item condition including temperature variation, to ensure product integrity, as well as any evidence of product tampering.

Automating Commercial Processes in Logistics with Smart Contracts

Current industry estimates indicate that 10% of all freight invoices contain inaccurate data which leads to disputes as well as many other process inefficiencies in the logistics industry. This problem is so prevalent that in the oil and energy industry alone, Accenture expects that at least 5% in annual freight spend could be reduced through improved invoice accuracy and reduction of overpayments.

Blockchain has the significant potential to increase efficiency along the entire logistics and settlement process including trade finance and help to resolve disputes in the logistics industry. As digitized documents and real-time shipment data become embedded in Blockchain-based systems, this information can be used to enable smart contracts. These contracts can automate commercial processes the moment that agreed conditions are met.

One of the first startups to pursue such smart contract applications in the logistics industry is ShipChain. ShipChain is an early-stage company which has designed a comprehensive Blockchain-based system to track and trace a product from the moment it leaves the 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 can integrate with existing freight management software. 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, as soon as the driver transmits confirmation of successful delivery). A key 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.

In this use case, Blockchain in combination with the Internet of Things (IoT) in the logistics industry will enable even smarter logistics contracts in future. For example, on delivery a connected pallet will be able to automatically transmit confirmation and the time of delivery as well as the condition of the goods to the Blockchain-based system. The system can then automatically verify the delivery, check whether the goods were delivered as per agreed conditions (e.g., temperature, humidity, tilt) and release correct payments to the appropriate parties, greatly increasing efficiency as well as integrity.

Blockchain can further be used in the context of IoT to automate machine-to-machine payments (e.g., connected machines negotiating and executing price based on the logistics activities performed).

Another example of smart contracts in the logistics industry is the digitization of letters of credit (L/C) in order to accelerate the preparation and execution of a standard paper-based L/C – a process which currently tends to take from a few days to a few weeks. The Bank of America Merrill Lynch (BofAML), HSBC and the Infocomm Development Authority of Singapore (IDA) have developed a prototype to bring the paper-intensive L/C process onto Blockchain. The system essentially enables the sharing of information between exporters, importers and their respective banks on a secure Blockchain-based platform. This allows trade deals to be executed automatically through a series of digital smart contracts. In the trial, each of the four parties involved in an L/C transaction could visualize data in real time on a mobile tablet and see the next actions to be performed.

In a joint statement, the consortium partners state that the proof of concept shows potential to streamline the manual processing of import/export documentation, improve security by reducing errors, increase convenience for all parties through mobile interaction and make companies’ working capital more predictable. The partners now plan to conduct further testing of the concept’s commercial application with selected partners, such as companies and shippers.

Startups are also working in this space with one example being Libelli. This company is developing a solution to essentially act as an escrow agent between any seller and any buyer to create a smart contract, bypassing the need for buyers and sellers to engage banks and eliminating the paperwork traditionally associated with L/C. The company aims to provide transparency to all stakeholders during the process, and claims that the automation of this commercial process reduces L/C time-to-execution down to a few minutes, with costs ten times lower than currently charged by banks.

Other functions that could be automated include outsourced transportation management, normative compliance, route planning, delivery scheduling, fleet management, freight forwarding, and connectivity with business partners.

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