Blockchain Applications in Supply Chain

Blockchain is receiving a lot of press right now, and at least some of it is directly related to the logistics and transportation industry.

“Blockchain allows businesses to track assets along the supply chain, introducing increased transparency and cost savings,” Gigabit’s Connor DiGregorio writes in Blockchain: the 2018 disruptor of the year.

Walmart, for example, is piloting a blockchain program that tracks produce from farm to shelf. And, IBM and Maersk are testing a similar program using blockchain to track and streamline shipping of various other products—an experiment that led to lower costs and fewer delays for the companies’ global trade activities.

According to Fortune, the new entity intends to help shippers, ports, customs offices, banks, and other stakeholders in global supply chains track freight as well as replace related paperwork with tamper-resistant digital records.

At the heart of the early experiments stands blockchain, the shared, distributed ledger that facilitates the process of recording transactions and tracking assets in a business network, according to IBM’s Blockchain for Dummies.

Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved parties Assembled in blocks that are linked together to form a chain, blockchain expands as the number of transactions grows, with each block containing a hash (a digital fingerprint or unique identifier), timestamped batches of recent valid transactions, and the hash of the previous block.

Calling Blockchain the “killer app for supply chain management in 2018,” ComputerWorld’s Lucas Mearian notes that the technology will be particularly applicable in the global shipping environment.

“The new platform (being developed by IBM and Maersk) could save the global shipping industry billions of dollars a year by replacing the current EDI- and paper-based system, which can leave containers in receiving yards for weeks,” he writes. “Blockchain could also save the shipping industry billions of dollars by replacing outdated systems for tracking cargo and getting approval from customs and port authorities.”

The Road Ahead

While Odyssey experts understand the potential benefits of blockchain cited above and are keeping a watchful eye on the developments, they suggest patience before jumping to conclusions. Odyssey experts point to three core areas to focus on when understanding blockchain’s application to the current logistics industry:

Perceived Benefits to all Parties Involved:

Russ Marky SVP & CIO at Odyssey Logistics says one question that still needs to be answered when it comes to the use of blockchain in logistics is: “What is the true benefit for all the parties in a logistics transaction?”

The perceived benefits for shippers are improved supply chain visibility and reduced administrative cost in the form of ‘smart’ contract management and freight bill auditing, Marky says, but the benefits for the carriers are not as clear.

“Perhaps the carriers will benefit from improved cash flows resulting from the use of these ‘smart’ contracts,” he points out, noting that the use of these contracts promise to reduce or eliminate invoicing disputes that today result in larger receivables.

“Maybe the carriers will see reductions in staff needed to answer shipment status questions.  I’d argue the technologies exist right now to share near real-time shipment information but ask any shipper if they have enough visibility from their carriers today.”

Size and Scale

The size and scale of the parties involved will play a major role in the decision of whether or not to participate in blockchain. The startup cost in the form of IT development, infrastructure and ongoing maintenance to participate adds up fast. The larger entities with deep pockets may be able to make the ROI case easily but a smaller party may find it challenging. The timeline on when an entity would see a return on this substantial of an investment has yet to be seen.

Adoption

Due to the extreme cost and process change Odyssey experts warn adoption will be slow. Glenn Riggs, SVP Corp. Logistics Operations & Strategy at Odyssey Logistics expressed concern of hype that has been created in the past for other technologies, “Back when XML came along, many in the industry created similar hype about how it would transform logistics. However, now years later the adoption rate is not what was anticipated.”

With the tight over the road capacity situation as it currently stands, Marky also points out, “Rates and Service level will always be paramount to shippers.  Will shippers reject excellent service and rates because the carriers don’t participate in blockchain networks? If the answer is no, then they will still have to deal with the challenges and costs that they believe blockchains will solve.”

Odyssey’s team of experts continue to stay up to date with the latest developments of blockchain. They have open communication with leaders from every segment of the industry to investigate its potential applications. We will be sure to send updates as the situation develops. If you have any specific questions about blockchain or its application to your specific business please give us a call.