Could Blockchain Technology Disrupt the Logistics Industry?

The freight industry is on the verge of significant tech-driven disruption. Small businesses make up a huge part of the economy but have historically been ignored by major shippers and other facilitators of international trade. An increasingly digital supply chain is helping to change all this, making it easier for businesses of all sizes to participate in global commerce.

In this context, we believe that blockchain technology could be a gamechanger. A way of securely verifying complex processes, blockchain could make all transactions that need trust and verification cheaper and more efficient, potentially benefiting SMEs and emerging market businesses in particular.

Blockchain’s role in international trade
Blockchain involves a data storage technology called an open ledger, which records transactions, embedding contracts in code and protecting them from revision or deletion. The ledger is stored in “blocks” across a “chain” of thousands of distributed computers so that there’s no single point of weakness.

The records can be stored and shared, making the interaction between multiple parties virtually seamless. A number of technology enhancements like cryptography and verification based on mathematical routines (“work” or “mining”) add a layer of security. When it comes to moving goods, blockchain technology could vastly improve visibility and streamline the process.

In conjunction with the Internet of Things (IoT) and an ecosystem of participants, every movement of a shipment would be automatically tracked and it wouldn’t be possible to tamper with the records. Unlike current international transport processes, which involve the largely manual collation of information from multiple sources, the chances of error or corruption would be close to zero.

For example, a shirt could have an embedded device with its own unique identifier written to the blockchain. As it left an overseas factory, it could draw on a database of tariff codes and generate its own tracking transaction all the way to a customs entry, accelerating its journey over the border. The possibilities are exciting – for instance, Maersk-IBM joint venture uses blockchain technology to manage and track container shipments, reducing costs and making global trade more efficient and secure.

Meanwhile, commodity trading company Mercuria has been working with ING and Societe Generale to use blockchain technology to ship oil cargo, hugely reducing the volume of paperwork involved. It’s clear that blockchain could improve processing times and ease trade, leapfrogging traditional roadblocks.

The blockchain blocker
Although there’s still a lot of work to be done in terms of testing, refining and implementing this technology, technological limitations are not the main blocker. Instead, I believe that industry collaboration barriers will prove the hardest to overcome. For blockchain to truly succeed, it will be necessary for all participants involved in the repositioning of goods to participate.

While partial visibility may be acceptable in the build-up, the power of the technology only comes into its own when all the “handoffs” become part of a seamless tracking system. With the move by many tech companies to lead the way into multiple eco-systems, companies are not going to be willing to throw their lot in with one provider, and that means multiple pilots and traction need to be established, all of which takes time.

Building blocks
The potential for blockchain to revolutionize the shipping industry is immense, and many companies are already building cutting-edge solutions. But blockchain’s capacity to completely overhaul global transit and to eliminate the need for many unnecessary processes is, for now, likely to be thwarted by institutions that benefit from the status quo.

Until a critical mass of industry participants embraces the potential of new technology and fully understands the significant benefits of encouraging frictionless international trade, we will see the industry continue its current status of establishing many pilots while waiting for the tipping point.