We would like to thank Ken Lyon and Transport Intelligence for providing us with the following piece about Blockchain and the challenges for its adoption in the logistics industry. Blockchain is a relatively new concept in the context of the logistics industry, and right now its full potential is yet to be uncovered for this field. However, despite the challenges, the more logistics players explore and experiment with Blockchain to enhance their operations, the faster the industry moves towards the connected supply chain and the Physical Internet.
There is a lot of confusion surrounding the implications of Blockchain technology and its potential impact on the logistics industry. Some commentators suggest it will transform every aspect of the information flows running through supply chains. Others that it will remove the need for centralised authority and decimate information brokers and ‘middle men’, such as NVOCC’s and freight forwarders. Actually, at this stage of development, who knows? All of the above could be true, or only some aspects of it.
Blockchain technology is essentially the use of a distributed database that has multiple copies in numerous locations around the world. They are all synchronised with each other using very complex mathematical algorithms and every transaction has to be validated by a random number of participants before it is entered onto the Blockchain. This makes it very difficult to retrospectively change entries into the Blockchain and therefore provides a high degree of transparency and trust. In short, it has the potential to be a rock solid system of record and the fabled ‘single version of the truth’.
Such transparency across supply chains has long been cited as a means to reduce costs by improving visibility and reducing bottlenecks. Both have a direct impact on the speed and efficiency of operations, especially express operations. Indeed, a Blockchain platform that was used across the industry would be able to reflect the complete lifecycle of an inventory item. It would confirm the flow from manufacture, order, shipment and every subsequent stage through to end of life, and any return and recycling process. However, in the fiercely parochial world of logistics and supply chain management, how likely is it that such a platform could be established?
There are a number of experiments and trials taking place involving Blockchain technology at the moment (Autumn 2017). The participants include major shippers, global shipping lines and some of the leading technology vendors. The publicity surrounding the trial involving WalMart, Maersk and IBM has certainly grabbed numerous headlines. In Japan, a consortium of major ocean carriers, industrial conglomerates and banks, has been established to explore the implications of the technology. They believe (correctly), that Blockchain technology could reduce the huge amount of documentation and data that is exchanged between the parties involved in international shipping. There are many others and the number will grow.
However, the technology is not a simple solution to implement. This is because, by design, it was never intended to be controlled by any single party, or company. Indeed, the exponents of Blockchain technology see it as an opportunity to remove control and management from any central authority. The advent of digital currencies, such as Bitcoin and Ether, stem directly from this notion, which is the operation of currencies outside the control of any central bank.
How this will ultimately play out with consortia such as those involved in the pilots mentioned previously, remains to be seen. The Blockchain supporting Bitcoin is driven by thousands of anonymous ‘miners’ who operate the servers validating the transactions. It’s interesting that a platform designed to be ‘trustworthy’ is actually operated by parties with who it is impossible to identify as a group.
Of course, as IBM has done, any single company can construct a Blockchain. But in doing so it removes the inherent independence of transaction validation. So in that regard any solutions are not dissimilar to those running on a traditional database.
The technology is indeed powerful and has great potential, but general adoption will only occur when a complimentary narrative explains the advantages and value of independent industry platforms. Given the acceptance of social platforms, cloud services and mobile device proliferation, that story may be easier to explain.
More information on this and other relevant topics can be found in TI’s latest Global Express and Small Parcels report.
About the author: Ken Lyon is Managing Director of Virtual Partners Ltd and has over 30 years of experience in the transportation industry. Ken specializes in the use of advanced information systems to manage the operations of 3PL (Third Party Logistics), 4PL and Lead Logistics Providers and their trading partner networks. Over the past few years he has helped start-ups concerned with supply chain technologies and before that, he spent 10 years as a Director and VP of information services at UPS, helping to establish its Logistics and supply chain services Group. Ken was recently appointed Chairman of the Board for an international logistics software group and also sits on the board of Transport Intelligence.