Blockchain in Logistics – Will it Change the Industry? (Part 2)

Blockchain in Logistics – Will it Change the Industry? (Part 2)

In our previous post, we discussed the history of blockchain and some of the benefits it has for the transportation and logistics industry. This is a continuation of the interview with a blockchain expert Martijn Siebrand, who talks more about the intersection of blockchain and logistics – more specifically, on how the technology is already being used in the industry, how it could be used in the future and what logistics companies need to do to get on board.

This is the second part of a two-part series interview about blockchain technology in the supply chain and logistics. Read the first part here


ANNA: Could you please illustrate a couple of specific practical examples of blockchain in the logistics sector? I am aware that some obvious examples exist already, such as Maersk and IBM, but are there any others that would be a good illustration of how the technology is already being applied in the industry?

MARTIJN: Another big example of a blockchain project in the logistics industry are the shiploads that went from South Korea to China using a vessel tracked on the blockchain with IoT devices. Companies that are part of this pilot include Hyundai, Samsung, Amazon and Microsoft. The entire trip was tracked on the blockchain, and they will also add financial models to it, allowing customers to get their shipped goods financed. They have already done it with quite big companies. There are also a few blockchain use cases in the Netherlands. One is for when a logistics service provider delivers the goods and signs off with the E-CMR (e-transport document). The protocol is used in many European countries and by the United Nations, so it is applicable not only for the Netherlands, but for all of Europe. Germany, in fact, is the only country that does not use it. When the goods are delivered and signed off via the E-CMR, the logistics service provider has the ability to ask for a direct payment through a bank.

“Сross-border trade within Europe generates nearly 400 million printed transportation documents each year, meaning that blockchain can save not just time and money, but the environment, too.”

Using this blockchain solution, integrated with everything from the bookkeeping software to the banks, as soon as the logistics service provider delivers the goods, the bank has the ability to directly finance the invoice, so you don’t have to wait for your transport document and so on. As a result, you are able to get the payment at the exact moment the job is complete, rather than the normal process of waiting up to a week for the payment to clear. In other words, as soon as you deliver your part of the agreement, you earn a reward for it right away. Moreover, the other interesting thing is that cross-border trade within Europe generates nearly 400 million printed transportation documents each year, meaning that blockchain can save not just time and money, but the environment, too.

Another great example is from the logistics technology company Marine Transport International, which demonstrated that the logistics industry will see improved connectivity, efficiency and security thanks to blockchain. The project, which has connected suppliers, shippers, load points, customs and terminals on a shared blockchain ledger, has far-reaching consequences for the logistics industry as it seeks new ways to improve security and profitability. All parties involved in the supply chain benefit from automated data flows as the system allows complete interoperability of data sources, even with legacy systems.

Martijn Siebrand

ANNA: It is encouraging to see that there are already specific examples of how blockchain is being applied in the industry. As you mentioned in your example of smart contracts, the whole idea of blockchain is to create total transparency of the supply chain process. But what does this mean for security? Especially in the permissionless environment, logistics companies are fearful of implementing blockchain solutions because they could compromise data security. In the case of the small and medium-sized companies, if they wanted to team up and create a permissionless environment to transparently share all of their data, what would happen regarding the security of that data?

MARTIJN: The data would be encrypted and you would have both a public and private key. You must keep your private key safe for yourself; the public key is publicly visible, but it is just a part of the total document, the total information. Why is it so safe? Back to the bitcoin protocol, if you wanted to hack the bitcoin blockchain, you would have to go block by block, all the way back to the block with your transaction. Every ten minutes new blocks are created with new data on it. This means that if you wanted to adjust the transaction in a previous block, you would have to get 51 percent of the computers on the network to verify the change for each block of the chain following back to the transaction you wanted to change or hack. Those blocks are cryptographically represented for the past eight years, since the bitcoin protocol was created. That protocol has never been hacked.

Cybersecurity in logistics is just one reason to think about blockchain right now. Another one is the need for a fully transparent supply chain. Just consider the bankruptcy of shipping company Hanjin, for example, or Samsung which has previously lost track of its containers due to a lack of transparency. Blockchain can help in each of these cases.

Picture Credit: McKinsey & Co.

“Cybersecurity in logistics is just one reason to think about blockchain right now. Another one is the need for a fully transparent supply chain. Just consider the bankruptcy of shipping company Hanjin, for example, or Samsung which has previously lost track of its containers due to a lack of transparency. Blockchain can help in each of these cases.”

ANNA: This is actually one of the most important usages of the blockchain technology, and could persuade logistics companies to adopt it. Everyone is always worried about cybersecurity and being able to know exactly what is happening with their containers, and blockchain offers a viable solution. It sounds like you are saying that the technology is built in a way that, in the case of a cyber attack, it is impossible to lose all of the data stored on the blockchain. Is that right?

MARTIJN: Yes. The cybersecurity hack of APM terminal in Rotterdam, for example, was hacked because there was a central server. And if you’re part of it, it can cause you a lot of damage. With blockchain, you may succeed in hacking a single server, but there would still be more than 1,000 others running and guarding your data – it is impossible to influence them all together at the same time.

ANNA: Given that blockchain is all about data – and more importantly, secure data – what role will data analytics play in the implementation of the technology in the logistics sector?

MARTIJN: One of the incredible things about blockchain is that it allows you to create consensus without a trusted third party. But the other thing is that the information stored on the blockchain is immutable – that is, once the information is on the blockchain, it cannot be changed. This means that if you record rubbish information on the blockchain, it will remain rubbish – no one checks to make sure the data you enter is accurate.

I did a master class with the European Union, and they are very much into blockchain. And they say, even if Volkswagen were to start using blockchain, for example, we would not be able to trust them because they have already violated public trust. They say you can never trust any company, even if they are doing things on blockchain. And that is still a big question mark. You can enter inaccurate information and still perform with it; however, blockchain’s open ecosystem would allow other parties to know exactly who entered the inaccurate data and misrepresented the supply chain.

I think Transmetrics could become an important player for blockchain in logistics, where you would be responsible for cleaning up and checking the data for accuracy before it is recorded on the blockchain. You would act as a kind of filter to pull out all the rubbish information and make sure the right information ends up on the blockchain. Because you are not able to adjust data once on the blockchain you need to make sure that it is proper data. Transmetrics could provide the link, making sure proper data is recorded.

Martijn Siebrand

ANNA: There definitely are lots of inconsistencies and gaps in logistics data, so it will need a lot of cleaning. But by applying the artificial intelligence and machine learning we can help cover these gaps and solve inconsistencies, and avoid adding rubbish to the blockchain. It is like in TMS when they record all sorts of the information there, but it is not clean, resulting in poor optimization of operations.

To close the interview, I have one final question: what would be your overall advice for logistics companies that would like to start a blockchain project? What should they look for? What should they avoid? And how can they start?

MARTIJN: Well, they can start by calling me! That’s a joke of course… They have to join together to create an ecosystem with other parties that are interested in undertaking the blockchain journey. Companies should start asking others in their supply chains if they would like to work together, and then look for small projects to test the technology. Still, as of today, there are a lot of question marks. The technology, as of this moment, is in its early days; think of it like I have a Hotmail account and you have a Yahoo account and we cannot send email to each other. Currently, there are a lot of activities around interoperability aiming to make it easier to connect various blockchain applications.

“Blockchain alone does not make sense. It has to be empowered jointly. And when you create an ecosystem, it is critical that parties work together, which will be a challenge for logistics companies because they are not used to working together.”

Blockchain really makes sense to implement in two cases: first, when there is a party in some process that you must – but do not – trust (e.g., bitcoin eliminating banks); second, in the case there is a trusted party that you have to pay that does not add much value (e.g., AirBnB). In the case of logistics service providers and the signing of the digital transportation note, even though you would like to pay directly, there will still be a trusted third party – the one that signs off the documents – in the transition space. Imagine, for example, that you create a smart contract, and with an IoT sensor, you can see that the container arrived at the warehouse. At that moment, you could sign for the goods and execute the payment immediately.

So, start small, create an ecosystem, and think about whether or not there is a third party in the supply chain that you do not trust, or isn’t worth the value you pay for. Blockchain alone does not make sense. It has to be empowered jointly. And when you create an ecosystem, it is critical that parties work together, which will be a challenge for logistics companies because they are not used to working together.

ANNA: I think what you are saying is very good: start small, create an ecosystem and then move forward. And you are right, the whole mentality of logistics companies needs to be changed for the future. Thank you very much for the interview!


End of Part II. Read Part I here