Old Dogs, New Tricks: Blockchain in Logistics
Here is how this combo can work and who is trying to leverage it.
A cursory look at the international trade in goods brings tremendous figures to our attention immediately. In 2018, the industry peaked at an eye-watering USD 19.67 trillion, or 23.16% of the world economy’s output in the same year. Since the establishment of the World Trade Organization in 1995, the size of merchandise exports has nearly quadrupled, whereas cross-border trade has grown into a complex, multilayered system.
Nowadays, scattered across the planet, sellers and buyers are relying heavily on countless shippers, carriers, brokers, legal advisors, and other intermediaries. They are striving to minimize risks and boost efficiency, making deals quicker and hasten the flow of goods. Combined, their annual revenues are currently approaching USD 5 trillion, which is roughly a quarter of the global commerce ocean.
This disintegrated, sporadic system tends to misbehave when the number of geographies – and thus the number of legal systems, economic interests, cultural norms and other factors that directly affect business processes – grows within a particular supply chain. At every stage, these and other aspects cause an extreme diversity of mechanisms that barely work in concert.
The complexity of trade circuits makes the inevitable system outages harder to predict and prevent. Besides, when errors happen, it is often impossible to identify the real reasons behind them. Having a difficult time controlling contractors, entities at the ends of the chain, known as actual sellers and customers, need to keep their ears to the ground constantly. Even though, in many cases, insurance companies are the ones who eventually pay the price, the trading parties frequently lose their time, partnerships and, what’s more important in our fast-changing world, business opportunities.
While the International Chamber of Commerce (ICC) keeps updating Incoterms, more fundamental reform is needed to assess risks easily and increase transparency of the entire process. To resolve this issue, two things are needed: new methods to facilitate transactions and a better way to store related data.
Unavoidable disruption of on-land logistics
The two pillars of blockchain – Distributed Ledger Technology (DLT) and smart contracts – seem to be a perfect match for this issue. Multiple applications from real-time cargo tracking to groundbreaking payment features can be realized by the use of distributed networks and automated self-executing computer protocols.
Higher transparency of all the information associated with a certain deal might be achieved by immediate duplication of transaction data, which is then recorded a chain supported by multiple nodes. Decentralized and open to new entrants, the network also makes it possible for other parties to be engaged in the trading scheme in less than no time.
As each next block generated by the system is tightly connected to the previous one, the degree of security is ratcheted up. At the same time, the consensus mechanism, based on the so-called practical Byzantine Fault Tolerance (pBFT) algorithm, creates conditions under which there is no disagreement on data stored, and nobody is allowed to delete any record from the shared dataspace.
Ideally, the mixture of blockchain and key elements of the Internet of Things, such as smart sensors, can do well in cutting out proverbial middlemen, leaving some space only for tech-driven multimodal logistics providers. Nonetheless, this change will be hard to make immediately due to a plethora of institutional, technological and other hurdles.
However, a reform of this kind is plausible even in the current state of global supply chains, which are, in most cases, still filled with different intermediaries. In this scenario, all the necessary documents, including invoices, bills of lading and certificates of origin, can be digitized and encrypted. A third-party transportation service provider, a peculiar moderator of the whole process, is responsible for real-time transaction visibility, while carriers take charge of the shipment status data.
All this may work. It is a long shot, of course. So far, the scheme is sufficient only for high-end price segments, where final consumers are willing to pay more for supply chain transparency and premium quality.
As for the mass market, in practice, none of the distributed ledger applications currently help to cut costs. Even finance, which once was called the most likely domain for blockchain-driven development, is presently in possession of better tools than the nascent technology can provide, in terms of both time and value. Not to mention logistics, a more complex area where ‘physical’ is as essential as ‘digital’ and eventual success depends on the way the two are connected.
The supply chain, a complex organism, comprises a bunch of subsectors, of which the marine shipping industry is pivotal. In 2019, Danish conglomerate A.P. Moller-Maersk Group, the biggest dog in the global container game, teamed up with arguably the most significant blockchain evangelist – tech veteran IBM (IBM:NYSE) – to create TradeLens, “an open and neutral supply chain platform underpinned by blockchain technology.”
A handful of other sea cargo giants have also joined the platform, among them: Switzerland-based Mediterranean Shipping Company (MSC), French CMA CGM, German Hapag-Lloyd and Japanese Ocean Network Express (ONE). In other words, five out of six of the world’s largest container movers have made up a consortium. What’s more, they have received an utterly important nod – an antitrust exemption from the United States Federal Maritime Commission.
China Ocean Shipping Company (COSCO), the only top-tier transportation firm that hasn’t signed this agreement, is developing an alternative – the not-for-profit scheme Global Shipping Business Network (GSBN), which, by the way, includes a couple of the names above.
In a nutshell, there is no room to take one’s run in the maritime transport industry, as megaprojects occupy much space in this highly monopolized market. However, nowadays, logistics is more than just vessels. Trucking, for instance, is entering a more mature phase, though facing a looming disruptive competition from autonomous driving startups, such as Plus.ai and TuSimple, or the tech monsters’ spinoffs, like Google’s Waymo.
Apart from that, the last mile problem, along with other challenges in the field of micromobility, also poses problems. Procurement, production, sales, recovery, recycling and other stages of a product’s lifespan are inextricably linked with logistics services.
There are many upstarts addressing continuously appearing conundrums, with blockchain in their strategic arsenals. Based on open-source business data, such as funding information, investment profile, market positioning and founders’ background, EqualOcean has found the most prominent of them on a global scale.
Blockchain in logistics: new global startups to watch
We have analyzed hundreds of up-and-coming enterprises in order to elicit exceptional supply chain disruptors, businesses that are worth keeping an eye on. All the companies on the list have been founded after 2017 and, since then, have grown into significant players in their respective market segments.