What Blocks the Full Potential of Blockchain for Logistics and Supply Chain?

What Blocks the Full Potential of Blockchain for Logistics and Supply Chain?

“Blockchain” – one of the most popular buzzwords in logistics and supply chain industries these days.

During the first half of the year, we have seen UPS, BNSF Railway, GE and others joining the Blockchain in Transport Alliance (BiTA), which is putting efforts to develop the industry standards for blockchain. Meanwhile, IBM partnered with Maersk, the world’s largest shipping company, to establish their own blockchain joint venture.

But unfortunately, the progress is not as rapid as it seems. The logistics giants are testing the technology by backing closed, permission-based blockchain initiatives, which are bound to limit their effectiveness in the long-term.

The Return of the Intranet?

To imagine the current state of Blockchain in the industry, think about the intranet, which was once used to limit access to a closed network. Existing blockchain solutions are trying to do the same but do you hear anyone talking about the intranet anymore?

“To imagine the current state of Blockchain in the industry, think about the intranet, which was once used to limit access to a closed network. Existing blockchain solutions are trying to do the same but do you hear anyone talking about the intranet anymore?”

Just as the internet eventually overthrew the intranet as the main technology, permissionless blockchains will do the same, and deliver real disruption to supply chain and logistics industries in the process. Not only do such blockchains enable a greater level of transparency, but they also open up the playing field for smaller players to compete against logistics giants. However, several things must happen before they do.

First, logistics companies need to digitize, standardize, and cleanse their data. Blockchain’s biggest weakness and potential point of failure is its lack of flexibility in terms of data. Once data is recorded on the blockchain, it stays there in an immutable form, meaning that it cannot be edited or deleted later on. At the same time, this is also one of the most important aspects of the technology, as it improves the transparency and prevents fraud.

However, the quality of the data remains a major problem for most of the logistics companies and it must be resolved before they can leverage the blockchain to achieve better business results. In addition to that, due to a large number of touchpoints in the supply chain, data across organizations is likely to be fragmented and often recorded using different units of measurement.

Even within the organization itself, data is sometimes recorded on paper, or maybe not recorded at all. But the primary problem is that logistics data is typically low quality and simply not accurate.

Therefore, in order to compete with the industry giants, logistics companies have to step up and ensure that their data is recorded accurately or use existing tools on the market to clean logistics data, before recording it to the blockchain. Furthermore, transport companies must start digitizing more data and work collaboratively in order to develop an industry standard for recording it. FedEx and other players are already working together to do that as part of BiTA, but companies outside of the alliance should think about it and act similarly as well.

An Ecosystem of Supply Chain Partners is Needed

Once an industry-wide standard is implemented, logistics companies must form an ecosystem of supply chain partners who would use the standard in a shared, permissionless blockchain environment.

By using an open platform for sharing standardized data, logistics customers and suppliers would gain visibility over the entire supply chain, allowing them to enhance the efficiency of their shipments by reducing waiting times and achieving better capacity utilization.

“As larger logistics companies continue to create fragmentation in the blockchain space, others would be wise to stay together in a permissionless environment to share their data and remain competitive. However, keep in mind that without clean data, implementing the blockchain, for a company of any size, would simply be a waste of time.”

With the same goal in mind, ShipChain, another member of BiTA, has worked to create a supply chain management system, which brings visibility to all the steps of the logistics process. At this point, only e-commerce giants such as Amazon and Alibaba have such visibility over the entire supply chain by developing their own complex logistics networks. In reality, not even Maersk has such a detailed understanding of the supply chain, which is one of the main reasons behind the company’s own blockchain venture.

However, Maersk is not the only one. A number of other companies with large logistics operations, including Walmart, have also begun to develop permission-based blockchain initiatives in order to create an ecosystem around their supply chains. Nevertheless, it only leads to more inefficiency and gives other logistics players the upper hand. Blockchain’s value is ultimately obtained from the number of users, which is why this type of fragmentation actually gives logistics companies a strong incentive to unite.

As larger logistics companies continue to create fragmentation in the blockchain space, others would be wise to stay together in a permissionless environment to share their data and remain competitive. However, keep in mind that without clean data, implementing the blockchain, for a company of any size, would simply be a waste of time.