Top Benefits of Blockchain in Logistics: Use Cases
The blockchain technology will allow the international trade to save up to $50 billion a year in logistics in the near future and up to $500 billion in maturity. Find out how and by means of what improvements this will happen – there are examples, statistics, infographics and first results in the article.
How it is now. International container transportation is one of the most excessively bureaucratized branches in the modern economy, as the shipping handling involves many countries, government agencies and companies, and each has its own rules for working with documents and accounting systems.
For example, the refrigerated cargo delivery to Europe from East Africa requires stamps and permits from about 30 people and organizations that need to intercommunicate in more than 200 cases. The combined costs of document processing with such logistics are rated in an amount of 15 to 50% from the cost of physical transport.
How will it be with the blockchain? We will check main blockchain cases. According to estimate of the World Economic Forum, the decrease of bureaucratic barriers for trade in logistics and supply chains will increase global GDP by 5% and global trade by 15%. At the same time, according to expert opinion, the blockchain is the only technology that can take away these barriers.
Set-up projects. Maersk and IBM have joined together to create a global system for digitizing trading operations and controlling cargo transportations. Their system will allow every interested person to trace goods along the supply chain, in order to understand what is with the container and where it is in real time.
Interested parties can also see the status of customs documents, view consignments, and other information. The blockchain technology will provide secure information exchange and documentation storage, which is protected from unauthorized tampering.
ZIM is the largest cargo shipping company in Israel, it has carried out the testing of consignment digitization. This is a key document in logistics because it acts as a notice of delivery and contract for the shipment for deliveries, where all the necessary data is written: description of the cargo, quantity, and place of consignment, as well as the information about the conditions how the goods should be transported, processed and paid.
During the test, the containers were transported from China to Canada without any problems. ZIM and pilot participants of the experiment successfully issued, transmitted and received original electronic documents through the decentralized network.
Consulting company Accenture is also developing a blockchain-based system to replace the traditional consignment and the consolidated source of “truth” for all interested parties in the supply chain.
How it is now. Supply chains have become so complex that the average consumer is unable to trace the origin of the goods and confirm its authenticity. As a result, the pharmaceutical and grocery industry is connected to scandals and court challenges because of fake, counterfeit or damaged products.
Only according to official Interpol and WHO data, 1 million people die every year from counterfeit drugs. Because, according to researches, 1% of drugs in developed countries and 10% of drugs in the world are fake. Another 8.5% of all pharmaceutical products simply spoiled due to inadequate transportation conditions.
How it will be with the blockchain. Every time a product passes from hand to hand, this transaction is recorded in the blockchain, which creates a continuous history of product moving along the sales chain from the manufacturer to the shelf in a supermarket or drug-store. Thanks to this, you can improve the following issues:
- recording the moment of assets transfer and their quantity – such as containers, pallets, trailers – when moving goods along the sales chain;
- tracking orders for the sale or purchase, sending and changing delivery notifications, receipts, contracts or other documents that are related to the transportation of goods;
- assignment of certain properties to products or verification of certificates, for example, verification of the authenticity of the product’s origin or whether it is organic;
- binding of physical goods, containers, transport and equipment with serial numbers, key numbers, bar codes using RFID tags (radiofrequency identifier);
- information exchange about the process of collecting products, production, delivery, financial estimates and handling of products.
Set-up projects. DHL and Accenture have set up a blockchain-based serialization project, providing all interested parties with the ability to track and authenticate pharmaceutical products.
Serialization is the process of assigning a unique identifier (for example, a serial number or a QR code) for each sealed container, which is then associated with important information about the origin of the product: manufacturer, lot number, expiration date, transportation data. This will allow tracking the location of the goods at any stage of its life cycle and confirming its authenticity.
The British consumer cooperative The Co-op Food uses the startup technology Provenance to track the way of seafood, poultry, fruits, and vegetables from the manufacturer to the shelves of supermarkets. The system uses RFID tags and special sensors to track products and their delivery conditions.
Walmart also implemented the blockchain for the digitization the food shipping handling. The retail chain uses the IBM Food Trust Solution technology, which is developed as a serial commercial solution for:
- authentication of products origin;
- confirmation of freshness and non-pollution of products;
- reducing the amount of food waste.
How it is now. An industry assessment shows that 10% of all freight invoices contain inaccurate data, which leads to conflicts and significantly reduces the efficiency of selling processes in the logistics branch. The problem is so common that consulting company Accenture has calculated that only in the oil and gas industry one can reduce up to 5% of the cost of freight invoices by improving the accuracy of documents, reducing overpayments and removing unnecessary service providers.
Unnecessary service providers are partners and intermediaries who charge a fee for providing guarantees, verifying the authenticity of invoices, consignments, certificates, licenses, and the handing over of documents and information. In other words, these are banks, payment gates, notaries, couriers, audit and certification firms. All of them "bite off" significant profit shares of manufacturers, suppliers, and sellers of products. And also they increase the price of goods for the final consumer.
How it will be with the blockchain. With the help of smart contracts, you can automate the process of documents, information, goods, money and any other valuables transferring. Or use cryptocurrencies for transactions. A smart contract is a computer algorithm for automatically data exchange that have a digital certificate.
Using smart contracts:
- Eliminate intermediaries. The trustees, who verify the documents, the participants, confirm the legality and guarantee the transfer of values, will become unnecessary.
- Speed up the process. Using computer algorithms and digital certificates instead of the manual handling of documents will speed up the process of transferring valuables by several dozen or even a thousand times.
- Keep costs down. The less intermediaries involved in the transaction, the less you need to pay commissions. For example, in trade transactions, you can do without guarantors, banks and payment gates.
- Reduce corruption and fraud. If a dishonest intermediary or official does not participate in the closure of a deal or issuance of a document, he is not able to forge a document or receive a bribe.
Set-up projects. One of the first startups that used smart contracts in the logistics branch is ShipChain. The project team has developed a comprehensive system for traceability records and product tracking during freight.
The system is generally intended to cover all methods of transportation. At the same time, ShipChain’s key automation element is an internal digital currency called “SHIP tokens”. Platform participants use it for financial transactions within the platform, for example, to pay for freight.
The NYSHEX project follows has a similar path, only in its smart contracts, there is the system of punitive sanctions for non-fulfillment of the contract conditions. In Eastern Europe (Ukraine and Belarus), the start-up A2B is concerned with the blockchain implementation into the industry. It should be noted, the blockchain is used in education and shows high efficiency.
How it is now. The Internet of Things or IoT, is all everyday objects that can exchange data over the Internet. The research and consulting company Gartner estimated that by 2020 there will be more than 20 billion IoT devices in the world.
How it will be with the blockchain. Logistics is one of the most promising directions for the implementation of IoT. For example, upon delivery of a container, it will be able to independently confirm delivery, indicating the time and condition of the cargo. The system will then automatically check whether the good was delivered in accordance with the agreed terms (temperature, humidity, slope), and give out payments to the parties concerned.
But not only this will be important in a few years: the development of artificial intelligence in the field of autonomous transport control will require such systems that could manage thousands of vehicles in real time and be completely protected from errors and unauthorized intervention. This is only possible with the blockchain platform and smart contracts.
Set-up projects. With the help of IoT sensors, the Swiss company SkyCell was able to create a container for the transportation of biopharmaceutical preparations that require strict conformance of humidity and temperature levels. Thanks to them, SkyCell in 2017 reduced the level of damage to pharmaceuticals during transportation from 8.5% to less than 0.1%.
The Sawtooth platform uses the Hyperledger blockchain along with IoT to improve the seafood supply chain. IoT sensors are attached clipped on the collected fish to determine the location of delivery, temperature of transportation, movement, humidity. This information is tracked in real time and brought into the distribution register. Then the ultimate buyer can get access to the full information and make sure that the product is fresh and original.
IBM Watson IoT concerns with the serial implementation of the blockchain tandem with IoT. Their technologies are used by the Swedish metallurgical giant Sandvik, the French state railway company SNCF, the insurance group Groupama and many others.
How it is now. New studies by Boston Retail Partners show that in 2017, 50% of retailers offered customers the delivery “on the day of order”; although in 2016, this rate was at 16%. At the same time, according to the data of polling, 65% of dealers will put in such a form of delivery in the next two years.
How it will be with the blockchain. Two simple examples:
- You bought a laptop at an Amazon store with home delivery on the day of your order. Amazon will use an automated drone for delivery. A day, two, a week passed, but you don't receive any laptop. You call the store and find out that the drone was hacked and your laptop was stolen.
- You bought a laptop from an Amazon store ... but you are not a common person, but a politician. And instead of a laptop, the drone brought the explosive device, chemical weapons or simply dived on your head from a great height, put in other words, the drone was used for a terrorist act.
So, if you use a control system based on a decentralized blockchain, such scenarios will be a science fiction. Because the distribution registry and cryptography is a very hard nut for hackers.
Set-up projects. In March 2015, Amazon obtained a permit to test the parcel delivery by PrimeAir drones in the United States. In December 2016, drones delivered the goods to a real buyer for the first time: a resident of the British Cambridge ordered a tiny set-top box and a popcorn package. In the summer of 2018, Amazon applied for a patent describing the use of blockchain technology for delivery and sendings to retail customers.
Walmart, the largest USA retailer, also tests the delivery by drones, but not of parcels, but of goods in warehouses and stores. At the same time, Walmart representatives sent an application for blockchain technology that will allow drones to recognize people on the ground and send drones to them.
How it is now. On average, sea freight forwarders wait 42 days before receiving an invoice payment. At the same time, up to 10% of such documents contain mistakes, which is why the courts freeze $ 140 billion each year pending an investigation, which can last for years.
How it will be with the blockchain. One of the main problems of delaying payments by invoices in logistics is the credibility to the data. Quite often, the data in load boards (marketplaces, on which applications for freight transportation are placed) contain inaccuracies or become obsolete.
This is due to the fact that freighters usually work with several brokers, each of which enters information into several load boards, which leads to duplication of orders and inaccuracies in forecasting the utilized capacity of ships, trucks, containers, and wagons.
In the blockchain, information is time-tagged and saved in a decentralized network, to which many load boards can easily be connected, thereby avoiding inaccuracies and duplication.
The first projects. The common project of Maersk and IBM also develops in this direction. In addition to them, Uber and Amazon are doing the same, as well as several blockchain startups, whose success it is very early to judge. These are projects such as Cargo Deals, SwanLeap, QUASA, and Freightos. The last project took a fancy of General Electric; their venture capital fund invested $50 million in Freightos.
At the end of 2017, Doctor of Engineering Moritz Petersen (Kühne Logistics University, Hamburg, Germany) and Master of Science Niels Hackius (Technische Universität Hamburg) carried out the polling among the leaders of logistics companies to find out how they are looking at possibilities for the blockchain future in their branch. The research results are quite indicative:
Participants were also asked to indicate who, in their view, would benefit most from the implementation of the blockchain in the logistics industry. The answers were following:
And the last significant question related to the fact that now most of all interferes with the implementation of the blockchain in logistics and sales chains:
Summarizing the results of the polling, we can say that the blockchain, according to respondents, has great prospects in the logistics industry, but so far this technology is at an early stage of development. Therefore, we should not expect any breakthroughs in the coming years. Significant results can be seen in 10–15 years, when the blockchain is “run in” on real projects, having understood in practice its advantages and limitations.