Blockchain may be well on its way to becoming the future of shipping and logistics
Since the concept of blockchain technology was first released in 2009 as the technology fabric supporting Bitcoin, numerous applications have been continually built on top of the infrastructure. The blockchain’s wide adoption as an alternative application for legacy financial systems has fuelled proposed uses in numerous other industries, among them healthcare, manufacturing and logistics.
United Parcel Service (UPS) announced in November 2017 that it had joined the Blockchain in Transport Alliance (BiTA), a forum for the development of blockchain technology standards and education for the freight industry. UPS and Coyote Logistics – the latter a technology-driven, non-asset based truckload freight brokerage company that UPS acquired in 2015 – are a part of over 300 companies that have applied for membership to BiTA.
UPS sees the need to create industry standards and protocols to enable blockchain platforms to operate together with established technologies. In the future, blockchain standards and intercompany collaboration will support the logistics strategies that enable UPS customers to participate in global trade and finance.
The move illustrates UPS’ commitment to distributed ledger solutions, and to solving the obstacles to their adoption in the logistics industry.
Freight and logistics in the U.S. alone account for nearly $8 trillion in annual revenues (2015), and is expected to reach a volume of over $15.5 trillion by 2023. As the world’s economies scale up, that number is only expected to increase as we become more dependent on the international supply chain for our goods and services.
The industry, however, is not prepared for growth, as it currently sits on top of a crumbling infrastructure prone to systematic inefficiencies and rampant fraud. Countless intermediaries rake in fees and drive up the price of shipping. The problem is that the complexity and opaqueness of the process make it difficult to put checks and balances in place.
The main appeal of blockchain technology lies in its ability to create decentralized and immutable distributed digital ledgers — networks that have no single point of failure, are maintained by multiple parties and whose information cannot be hacked or corrupted. This increases the security and transparency of all information that is stored on a blockchain across the life cycle of a transaction.
This increase in visibility throughout the process will dramatically decrease the theft and hacking that plagues the industry and with an encrypted ledger that logs all of the critical transport data which is immutable to hackers, as no one has the ability to change or delete crucial information.
At present, most shipping involves a massive amount of paperwork, including sales contracts, bills of lading, port documents and other vital documentation tied to the vessel and the cargo.
These documents often flow through a long processional of parties tied to these cargo transactions. Take, for example, the practice of managing bills of lading amid a complex web of logistical connections: This process has become so convoluted and lengthy that it’s common for vessels to arrive at their destination for discharge of their parcels before the bills of lading even arrive.
One effective way transparency and efficiency can be increased is by leveraging smart contracts, the core innovation behind the Ethereum blockchain. Smart contracts are essentially self-executing contracts that are fulfilled when predefined stipulations are met. This is particularly useful when it comes to increasing the efficiency of shipping escrow by removing or limiting the intermediaries involved, and therefore bypassing the markups they post.
Blockchain also can increase the tracking and transparency of the supply chain. Shippers can gain more visibility across their supply chain and communicate important information such as loads, geo-waypoints and basic compliance information with carriers.
Once a shipment is confirmed and recorded on the blockchain, it is immutable, meaning no party can dispute the validity of the transaction or fraudulently manipulate the records. Once transactions are logged, smart contracts can then release any payments in escrow instantaneously, limiting the time and costs associated with intermediary processing.
UPS is interested in Distributed ledgers which have many potential applications in the logistics industry — UPS noted that they could be used for storing and sharing data related to tracking individual shipments, as well as insurance, payments, and compliance audits related to those shipments. Once the data is validated and added to the ledger, it can be viewed by any member with access to the ledger.
This could make them incredibly valuable for sharing data among the many parties typically involved in freight shipments, including shippers, carriers, insurance providers, customs authorities, and institutions financing the shipments. It would also cut out a great deal of manual labor currently involved in recording and sending much of this information. That would drastically reduce back-end costs for freight shipping businesses.
In particular, UPS is exploring blockchain applications in its customs brokerage business. UPS is one of the world’s largest customs brokers, and a key objective of its brokerage strategy is to digitize transactions. Blockchain technology would help by improving transaction accuracy and by replacing existing paper-heavy and manual processes. This will benefit all parties involved in the transactions.
Such an application would be highly secure and would generate valuable efficiencies for shippers who rely on UPS for customs brokerage.
UPS wants to leverage blockchain technology to facilitate execution and visibility of trusted transactions between UPS, its customers and government customs agencies. Blockchain, a digital database using blocks that are linked and secured by cryptography, can be used to keep record of any information or assets. This includes physical assets, like transportation containers, or virtual assets, like digital currencies.
But it is important to note that Distributed ledgers are still a very nascent technology, and more work is required to standardize them for logistics use cases.
That means standards need to be developed by industry groups with large numbers of stakeholders to help create distributed ledgers designed specifically for logistics applications. UPS joins other large freight transportation providers, like CH Robinson, as well as a slew of logistics startups like Convoy and Transfix, in trying to accomplish that task through the BiTA.
BiTA was formed by “experienced tech and transportation executives to create a forum for the development of blockchain standards and education for the freight industry”. Effectively, they want to bring together the best and brightest minds in the industry, across a wide variety of leading freight, shipping, and logistics companies, that have a vested interest in the development of blockchain technology.
By implementing blockchain technology, BiTA seeks to use triple-entry accounting, which the organization believes would solve some of the industry’s most pressing concerns. Some of the improvements would include immediate payment of drivers upon delivery; transparent and verifiable maintenance records; immediate and self-executing payments for things like fuel and parts; more efficient and fair processes for disputes and arbitrage over freight quality and claims; and immutable carrier history and safety records.
BiTA aims to drive standards development within the shipping industry as a whole by implementing a secure blockchain system.
If all its members can agree on a standard, future freight shipments could be quicker, more transparent and less labour-intensive. Major logistics firms that don’t support BiTA could find it harder to attract contracts from large clients.
If BiTA succeeds, blockchain will become a feasible technology inside the transport sector. Although there are already blockchain-based transport startups, they currently lack the interoperability and collaboration necessary for the technology to transform the entire industry. Gaining the support of another major logistics provider will help BiTA establish standards for blockchain’s usage.
According to Tech Crunch, the reason UPS is making the move toward blockchain now is that “they want to be a part of the revolution.”
“They want to play an instrumental role in developing the smart logistics network of the future. And they recognize that if they don’t get their foot in the door, someone else will.”