How Blockchain Helps in Logistics: 7 Working Cases

Logistics is one of the least efficient sectors in the global economy. In this business, estimated at $ 2 trillion, there are many counterparties, complex and very long supply chains, cumbersome workflows and big problems with the human factor. Blockchain will help simplify this entire logistics system, which, according to DHL, will increase the volume of international trade by 15%, and global GDP by 5%.

Here are seven key processes that will benefit most from implementing blockchain technology in supply chains and logistics.

1: Inventory and tracking of goods

How it is. International logistics, which accounts for 90% of world trade, is discrete (separate, intermittent) and uses all types of transport: rail, road, air and sea. Moreover, each participant in the supply chain uses its own local accounting system, for example, CRM, BPM, EDM, ERP or another. Communication between these systems is usually carried out on the analog (i.e. traditional) method associated with paper documents: couriers, mail, facsimiles, face-to-face meetings.

This approach creates a lot of problems:

1. A significant part of goods, containers and vehicles are lost or not used due to the fact that they are “out of sight” of accounting systems.
2. When Walmart implemented the blockchain in its logistics, they monitored the traceability of mangoes from the shelf in the store to the farm on which this fruit grew. It took 6 days 18 hours and 26 minutes (with blockchain - 2 seconds).
3. Correcting inaccuracies in accounting takes a lot of time and money.

It is impossible to solve these problems with the traditional approach, since complex interactions and paperwork are necessary to confirm the truth of information in accounting systems and at the legal level.

How it will be with the blockchain. The technology can be used to create a unified system of digital document management in the cloud, which will allow participants in the supply chain in real time to track the location of vehicles, goods and their products, even at micro levels.

Who implemented (cases):

1. Walmart for the supply of mango, pork and greens. In the long term, the largest chain retailer in North America plans to transfer all food supply chains to the Food Trust blockchain developed by IBM.
2. Unilever uses the Provenance blockchain to manage tea supply chains. The project involves more than 10,000 farmers, many banks, retailers and transport companies. This is not the only Unilever blockchain project.
3. Nestle, like Walmart, uses the IBM Food Trust blockchain to manage the supply chain of food ingredients such as mashed potatoes, milk and palm oil. So Nestle wants to show customers what their products are made of.

2: Authentication and Quality

How it is. According to the Organization for Economic Co-operation and Development data, in 2018 the global market for counterfeit products reached $ 450 billion, which is more than the GDP of countries such as Austria or Israel. Other studies show an annual loss of 1.6 billion tons of food (worth about $ 1.2 trillion), 40% of which is spoilage during transportation. At the same time, according to CDC estimates, a significant part of this spoilage falls on the consumer’s table, which in the USA alone leads to 130 thousand hospitalizations and 3 thousand deaths.

How it will be with the blockchain. As for the problem with counterfeit products, the blockchain technology allows you to track the origin of goods from the counter in the store to the specific manufacturer: factory, farm, enterprise, person. And this data has a high degree of truth, since each consignment of goods (or each individual product, if it is something large and / or expensive) is equipped with an RFID tag that constantly monitors the location of the product and the interaction between participants in the supply chain.

In addition, RFID sensors can also measure speed, temperature, humidity, and other empirical indicators. Thus, it is possible to detect a violation of transportation conditions and to identify spoilage of food products, as well as to track the process or the participant who is responsible for this. In addition, if a product is infected, for example, with E.coli bacteria, then a blockchain-based system can identify the source of infection in a matter of seconds and track all infected batches of goods.

Who implemented (cases):

1. Everledger uses blockchain for the diamond industry. The registry stores data on the origin of the gemstone, color, transparency, cut, carat weight, certificate number and other information.
2. A project of the type “Software as a Service” that collects and verifies the history of goods. It is used by Martine Jarlgaard, The Grass Roots Farmers Cooperative, Organic, Pole and Line, Co-op and many other organizations and manufacturers of goods around the world.
3. MediLedger uses blockchain to manage EPCIS-compliant drug supply chains. By 2023, all US pharmaceutical companies are required to adopt this standard.
4. SkyCell has developed cargo containers for transporting medical goods that require strict adherence to temperature conditions. Inside the container IoT sensors connected to the blockchain in the cloud.

3: Freight and Delivery Improvement

How it is. In a typical delivery scenario, about 30 parties are involved: shippers and consignees, 3PL, carriers, government services, banks, insurers and others. Moreover, during the delivery of only one consignment of goods, they exchange more than 200 paper messages: POD (delivery confirmation), invoices, BOL (bills of lading). The cost of servicing this paper work is $ 300, or 10-15% of the cost of transportation.

How it will be with the blockchain.  According to IBM, the implementation of the blockchain could save the logistics industry $ 38 billion a year. This will be possible thanks to smart contracts that automate most of the workflow and business processes. In addition, a distribution registry will reduce errors, shorten delivery times, and detect fraud.

Who implemented (cases):

1. Maersk and IBM launched the TradeLens logistics system based on the Hyperledger Fabric blockchain (created by the Linux Foundation) to track shipping freight traffic and exchange customs and financial information between participants in the supply chain. In mid-2019, TradeLens accounted for about 30% of the global shipping market.
2. A direct competitor to Maersk with a comparable market share. The project involves Evergreen Marine, COSCO, CMA CGM, Yang Ming and OOCL. Technical partner - CargoSmart.
3. Singapore BaaS platform for logistics and supply chain management. It is used by BMW, Renault, DNV-GL, H&M Group and other brands

4: Billing and Payment

How it is. As we noted above, the shipment of goods from one country to another creates a supply chain in which about 30 organizations participate, interacting with each other more than 200 times. A significant part of these interactions is billing and payment. In the traditional approach, these financial transactions are complex, require a lot of time and bureaucratic efforts, which creates the conditions for manipulation, fraud and generates a lot of mistakes.

How it will be with the blockchain. The technology allows you to automate the billing and payment process by linking these calculations to a specific action, for example, making an entry about the completion of the shipment of goods or the passage of a vessel, container and / or cargo through the border of a country or port. IoT sensors are responsible for tracking actions; smart contracts are responsible for process automation.

Thus, the blockchain solution:

• will ensure accuracy and compliance with the timing of financial settlements;
• reduce the need for paper circulation and intermediaries, which are necessary to guarantee honesty and compliance with transactions, which will greatly reduce costs;
• help prevent fraud or quickly identify it;
• reduce the generation of errors (for example, the wrong company name or account number) to a very low level;
• speed up all processes.

Financial settlements between participants in the logistics processes can be carried out in fiat and / or cryptocurrency money. The latter option is more efficient, since it allows you to reduce costs in trans-currency and international payments.

Who implemented (cases):

1. Tallysticks has created a blockchain platform that can process invoices and payments for logistics and other enterprises in real time, which potentially allows it to become the base platform for the invoice factoring industry with a turnover of more than $ 1 trillion.
2. Blockshipping creates a global container platform for managing transaction payments between supply chain participants, as well as real-time container tracking.
3. Trade (a joint project of HSBC, Deutsche Bank, Nordea, KBC, Natixis, Rabobank, UniCredit, Santander and Societe Generale) has established partnerships with TradeLens and TradeShift to digitalize the document flow of shipping and offer comprehensive services for participants in global trade processes.
4. Visa also saw great potential in the blockchain and launched its B2B Connect payment service. With this solution, banks and other organizations will be able to digitally identify counterparties and financial transactions within seconds, rather than 2-5 days.

5: Freight Market Launch

How it is. In the current state, the freight market is inefficient and incomprehensible. There are no clear standards and rules that would address the issues of liability of the parties for compliance with transactions and explicit or implicit fraud. In addition, this market is opaque, which quite often leads to unpredictable changes in freight costs, despite the absence of significant changes in supply and demand, as, for example, in early 2019, when the market fell into a state of shock due to the rapid drop in bulk carrier rates tonnage.

How it will be with the blockchain. Blockchain technology and smart contracts can be used to create a fair trading platform where companies can hire freight carriers in the shortest possible time on understandable and transparent conditions. At the same time, since all the terms of the contracts will be pre-specified in smart contracts, the level of responsibility of companies will increase, so it will occur immediately automatically, and not after long negotiations and / or a decision of the arbitration court.

Who implemented (cases):

• ShipChain is working to improve logistics through blockchain technology. The system uses open source smart contracts that are easily integrated into almost all existing blockchain-based logistics solutions. These contracts are designed to accompany logistics operations and are aimed at creating a decentralized freight market, as well as tracking errors and preventing theft. ShipChain is part of the BiTA (Blockchain in Transport Alliance), through which more than 80% of all global shipments come.

6: Transparency enhancement

How it is. A big problem in the supply chain is the low level of reliability of the information being verified, which is a direct result of the lack of transparency in the industry. For example, due to the lack of transparency in the formation of the cost of transportation (purchase, transportation, storage), many companies overpay for the delivery of their goods to the consumer, and due to the lack of the ability of the shipper to control the delivery process, “gray” schemes flourish in the market, smuggling and counterfeit.

How it will be with the blockchain. Since all data is stored on the blockchain, each participant in the supply chain can at any time check the information for each vessel, container and / or cargo, which reduces the likelihood of discrepancies in the documentation of different parties.

What will increase transparency in logistics:

• allow parties to see evidence of past counterparty results, including delays in delivery, payment, and the like;
• reduce the likelihood of discrepancies in documentation, for example, when the carrier and the consignee misinterpret the delivery time;
• will provide an opportunity to control the delivery process at the micro level, which will reduce the level of fraud, inaccuracies and will counteract smuggling and gray schemes.

Who implemented (cases):

• Provenance created a BaaS solution that increases the transparency of delivery chains, gives access to important information to all participants (including end consumers) and will provide fair compensation to participants in the logistics process in case of violation of their rights or violation of contracts.

7: Dispute Resolution

How it is. Every day, due to disputes about payments in the logistics industry, operations totaling more than $ 140 billion are “frozen”. For example, this happens when the shipper informs the transport company that it sent the wrong invoice or when the parties forgot to indicate who pays certain fees. Such discrepancies bind cash flows, increase the costs of companies and reduce their liquidity. To solve them, they usually involve independent auditors who find out all the circumstances and give their recommendations, which usually drags on the process to 42 days.

How it will be with the blockchain. If all the conditions and actions are recorded on the blockchain, then this eliminates most of the problems in the event of a dispute. Participants in the conflict can verify the necessary data on the blockchain and, in accordance with the contract (or the User Agreement), decide who is right and what to do.

Who implemented (cases):

• FedEx, another BiTA member, has launched a pilot solution for the safe storage of delivery records through their service, to use this data as a source of truth in case of disputes.

How Blockchain Helps in Logistics: 7 Working Cases key takeaways:

1. 1: Inventory and tracking of goods
2. 2: Authentication and Quality
3. 3: Freight and Delivery Improvement
4. 4: Billing and Payment
5. 5: Freight Market Launch
6. 6: Transparency enhancement
7. 7: Dispute Resolution