Blockchain in the Shipping Industry
Shipping is the lifeblood of the global economy. Without shipping, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would simply not be possible.
There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations and manned by over a million seafarers of virtually every nationality. Ships are technically sophisticated, high-value assets (larger hi-tech vessels can cost over the US $200 million to build), and the operation of merchant ships generates an estimated annual income of over half a trillion US Dollars in freight rates.
As estimated, shipping costs will vary across the world, but as tariffs have diminished business confidence and investment, the International Monetary Fund (IMF) said global trade in goods has been left stagnant so reducing the price carriers can charge to move cargo.
Shipping must face the fact that it must deal with rising costs as well as shrinking revenues. Ships are high polluters as they emit millions of tons of greenhouse gases such as carbon dioxide and methane gases. All of these contribute to global warming by trapping heat in the atmosphere.
In this article, we will discuss how blockchain technology can help the shipping industry!
The shipping industry remains traditional, with many of the processes involved being time-consuming and document-intensive with the use of paper documents still prevalent. Instead of keeping sensitive and important documents in one place, like a computer, a file drawer, or a warehouse where you have to scan and e-mail items back and forth.
Blockchain offers an impenetrable way to exchange this data. For shipping, money, contracts, a bill of lading, a tracking number, all can exist as a shared and secured encrypted public ledger that is not controlled by any one entity. It is easily verifiable as it cannot be modified. It will give a clear chain of custody, likewise for legal documents and endorsements. If you put something in the blockchain, you acknowledge custody of an item.
The blockchain technology has hit the shipping industry in a major way as many shipping companies are looking forward to making information flow more smoothly across business categories and making trade-related office procedures swifter and more efficient.
Though there are several challenges for the implementation of the technology, considering industry standards, meeting regulatory expectations as well as the emergence of a leading blockchain technology platform, the shipping industry participants need to be prepared for the blockchain technology as the technology is coming and companies need to be ready to be able to take advantage of this game-changing technology.
Best known as the technology behind cryptocurrencies like bitcoin, blockchain uses distributed data storage technology in conjunction with high-grade encryption to record transactions, protecting them from malicious revisions or deletion. The high level of trust in the data that is then engendered can result in related transactions being triggered, leading to a concept of “smart contracts.” The global blockchain market may be worth over $23 billion by 2023, up from $1.2 billion in 2018.
Blockchain has exciting implications for the way we move products around the world. If blockchain technology is adopted by the logistics industry, it could make the shipping faster and more efficient and improve data visibility and demand management. This would be the result of a fewer manual or ancillary transactions (e-mails, phone calls) being required.
Take the example of a sweater traveling from a factory in China to a shop in the UK. This journey may involve hundreds of paper documents and hours of manual data entry at different (and multiple) points in the supply chain for the same transaction/shipment. This increases the risk of error or an incomplete data chain and a reduction of trust in the data. Often, the retailer will have to make payment in advance.
Blockchain technology could prove to be a powerful tool for the logistics industry. And investors understand this: Analysis by BCG found that venture capital investors have invested around $300 million into startups offering transport and logistics blockchain solutions since 2013. Logistics companies are making their own investments, too.
But a plethora of new solutions is one thing, and the effective adoption of blockchain is quite another. Implementation is very difficult due to a fragmented value chain that includes many parties, a lack of common implementation of technical standards, and complex regulatory requirements that differ from one market to the next. Add to this the inherent lack of collaborative forums in the industry and a lack of transparency, and you have an industry that’s both ripe for blockchain disruption and simultaneously very difficult to disrupt.
Until a critical mass of new industry participants fully understands the benefits of frictionless international trade, embraces the potential of the new technology, and creates effective forums for joint implementation, the promise of more efficient, streamlined trade around this technology will be slow to be realized. But once we do reach that tipping point, global supply chains could be changed forever.
Benefits of Utilizing Blockchain for Shipping
Enhanced Carrier Compliance: The rise of e-commerce is pushing companies to have faster delivery methods like same-day delivery via local carriers. Due to integration requirements, new carriers struggle to break into the shipping market. Blockchain could provide the new technology standard needed to reduce complexity while improving compliance and the integrity of shipping transactions. It’s important to note that the carriers will need to choose to participate.
Better Customer Experience: Sometimes packages are lost or damaged while in transit. This can cause customers to choose not to order from a certain company again and damage the reputation of the shipper. Blockchain is able to keep the customer in the loop by showing them exactly where their package is at all times. They would be able to review documentation from the shipper to see the events in the chain of custody and determine where the issue occurred. This is also beneficial for the customer as they are able to make more informed decisions when choosing who to spend their money with.
Improved Communication and Transparency: With blockchain, all information is stored in a location that may be viewed by all parties with the necessary access key, providing an effective means for connecting customers, carriers, orders, and payments in real-time. This makes it much easier for everyone from the supplier to the end consumer to track where their shipment is and when it should arrive.
Cost Reduction: Expensive fees for documentation, procedural delays, discrepancies, and errors can be avoided by replacing old methods with a blockchain strategy. In fact, companies have seen cost savings within as little as two years after implementing blockchain technology.
Amplified Security: All information in the blockchain is encrypted, therefore adding a strong layer of security. Users cannot interfere with the system and change any information, therefore preventing fraudulent activities and manipulations. With blockchain, the possession of a shipment or package is tracked at each step which can help eliminate any questions regarding the chain of custody.
Quicker Processing Time: No more filing or conflicting integration standards. Instead of having to mail or scan documents to various parties, the exchange of information is instant and procedures that normally could take days or weeks to perform can be done in minutes.
Increased Shipping Route Speed: Instead of waiting for large carriers to fill up shipments on their trunk lines, smaller companies could bid on the legs of a journey. Right now, starting a shipping company requires a lot of overhead and upfront costs. In a blockchain system, smaller operators will be able to bid on contracts for certain shipments. This introduces greater flexibility to the entire shipping industry.
Important Developments in the Shipping Industry
Let’s take a look at some of the most important developments in the field of blockchain technology in the shipping industry:
First-Ever Bill of Lading Issues with Blockchain Technology: In August 2018, the first-ever container processed with the revolutionary new blockchain-based CargoX Smart Bill of Lading was released successfully in the Port of Koper, Slovenia (EU). The Bill of Lading for this shipment has been issued electronically and transferred with the help of an ultra-secure and reliable public blockchain network in just minutes instead of days or weeks, and the chances of loss, theft or damage to the Bill of Lading have been dramatically reduced to near-zero.
World’s First Shipping Transaction on Ethereum Blockchain: In March 2018, 300cubits announced the successful completion of the first trial shipment in its smart contract deployed on the Ethereum blockchain. TEU tokens held as booking deposit on blockchain have been successfully returned to the users upon receipt of port EDI message on a textile shipment. The shipment consisted of two 40-foot high cube container boxes going from Malaysia to Brazil.
Maersk and IBM Introduce TradeLens Blockchain Shipping Solution: AP Moller – Maersk and IBM announced the creation of TradeLens, a blockchain-enabled shipping solution designed to promote more efficient and secure global trade, bringing together various parties to support information sharing and transparency, and spur industry-wide innovation. As part of the TradeLens early adopter program, IBM and Maersk also announced that 94 organizations are actively involved or have agreed to participate on the TradeLens platform built on open standards.
The World’s First Marine Insurance Blockchain Platform Launched: EY and Guardtime announce the world’s first blockchain platform for the marine insurance sector. The platform launches in collaboration with AP Moller-Maersk A/S, ACORD, Microsoft, MS Amlin, Willis Towers Watson, and XL Catlin and after a 20-week proof of concept. The blockchain platform, built on Microsoft Azure global cloud technology, is positioned to provide significant value to the insurance industry. The first of its kind in the insurance industry, the platform’s initial phased rollout will involve deploying the benefits of blockchain for end-to-end use across the marine industry.
PIL, PSA, and IBM Conclude A Successful Testing Of Blockchain Technology: Pacific International Lines (Pte) Ltd (“PIL”), PSA International (“PSA”), and IBM Singapore (“IBM”) signed an MOU to collaborate on blockchain-based supply chain business network innovations. After the signing of the MOU, the companies worked on a Proof Of Concept (“POC”) exercise, built on IBM Blockchain Platform, applying and then testing a blockchain-based supply chain platform to track and trace cargo movement from Chongqing to Singapore via the Southern Transport Corridor.
Port of Antwerp Develops Blockchain-Based Document Workflow: Documents, such as certificates of origin and phytosanitary certificates, are transferred via blockchain technology and the document flow is automated by means of so-called “Smart Contracts.” Together with Belfruco, Enzafruit, PortApp, 1-Stop, and T&G Global, a specific solution was developed for phytosanitary certificates – which guarantee the safety of fruit and vegetables. With this pilot project, the port of Antwerp confirms its pioneering role in the field of innovation and digitization and actively collaborates on new solutions to further secure our food chain while automating the administrative processes.
Ocean Carriers and Terminal Operators Initiate Blockchain Consortium: Nine leading ocean carriers and terminal operators signed a formal statement of intent for a Memorandum of Understanding (MOU) to form a consortium to develop the Global Shipping Business Network (GSBN), an open digital platform based on distributed ledger technology. The participants include ocean carriers CMA CGM, COSCO SHIPPING Lines, Evergreen Marine, OOCL, and Yang Ming; terminal operators DP World, Hutchison Ports, PSA International Pte Ltd, and Shanghai International Port; and software solutions provider CargoSmart.
AMRO, Samsung SDS and Port of Rotterdam Launch Container Logistics Blockchain Pilot: ABN AMRO, the Port of Rotterdam Authority and Samsung SDS, the logistics and IT arm of Samsung have joined forces to launch a pilot based on blockchain technology to use digitization to achieve more transparency and, particularly, more efficiency. The ultimate goal is for complete, paperless integration of physical, administrative, and financial streams within international distribution chains. ‘The transportation, monitoring, and financing of freight and services should be just as easy as ordering a book online.’
Maritime Blockchain Labs Introduces New Consortium to Improve Crew Management and Streamline Documentation: Maritime Blockchain Labs (MBL), founded by blockchain technology and governance experts BLOC and the Lloyd’s Register Foundation, announced the establishment of a consortium to pilot a blockchain-based seafarer certification system. The project aims to streamline and expedite processes that can be marred by a lack of verification for safety documentation, paper-based certificate management, and a lack of access to validated safety and training certifications of seafarers.
BlOC Announces Industry-Led Demonstrator Consortium for Blockchain Use in Bunkering: Blockchain technology and governance experts Blockchain Labs for Open Collaboration (BLOC) announced, through its subsidiary Maritime Blockchain Labs (MBL), the establishment of a consortium to address traceability and transparency in the marine fuel supply chain, bringing together industry actors Lloyd’s Register, Precious Shipping, Bostomar, BIMCO, International Bunker Industry Association (IBIA), and GoodFuels.
Advantages of using the Blockchain Technology in the Shipping Industry
Image: Envista Forensics
Speed and lower costs: Handling trade on paper and manual handling of documents, even when sent by email, fax or post, slows down logistics and facilitation of trade. Blockchain technology enables the automatic operation of a maritime smart contract, with events triggering actions that would otherwise require manual intervention or processing. Digitization of the paperwork exchange process is a cost-effective mechanism, which will provide savings in transaction costs. This means that you will not need to take any decisions in relation to the smart contract because the decisions will be taken automatically. The automation will enforce conditions coded into transactions, e.g. enabling a conditional payment in relation to the shipment. This reduces the scope for individual mistakes, removes the role of intermediaries, and can improve the operational efficiency of port and terminal operators.
Privacy: Blockchain is a distributive ledger technology which means that every party to a shipment has access to their information and a secure audit trail of all shipments. The peer-to-peer network has secure interactions thanks to cryptography. The users’ identities are safely protected by crypto-programming and permission-based sharing. Each party has the right to protect sensitive information, such as customer data.
Reliability: The blockchain-based tracking system is more accurate because it enables all members of the platform to see the ledger at the same time, and have access to secured data in real-time. This means that the port authority, carriers, and freight forwarders can improve their logistics by viewing the whole progress of the shipment.
Security and Immutability: All records are individually encrypted. All nodes, which are comparable to small servers, contain a copy of this record. Any validated record in a blockchain is irreversible and cannot be changed. The documents exchanged in real-time on the blockchain cannot be altered, which reduces the risk of fraud. For example, a Bill of Lading is exchanged between participants in the network, whose rights are coded. Each transaction is encrypted using a key that links relevant participants. This reduces the risk of an unidentified number of copies of a Bill of Lading circulating between parties. This Bill of Lading cannot be misrepresented to avoid import taxes.
Shipping Companies using Blockchain Technology
There are some companies working to use blockchain technology to transform shipping industry:
CargoX: CargoX has developed a smart Bill of Lading that is a commercially viable alternative to traditional methods. Bills of Lading are transferred instantly between shippers, carriers, and receivers securely using the public key infrastructure. The transfer history is stored using blockchain technology, ensuring the record of ownership cannot be edited maliciously or otherwise.
Blockchain Labs for Open Collaboration: Blockchain Labs for Open Collaboration designs and develops high quality, reliable, sustainable, and resilient digital infrastructures to support social and economic development, with a focus on equitable and secure access. One of their early projects, BunkerTrace, added synthetic DNA to bunkers to move them as they moved through the supply chain. Combined with a blockchain ledger, this creates an immutable record of bunker supply making it possible to verify the source and quality of bunkers before they are burned in a ship’s engine.
Marine Transport International: Marine Transport International brings technology and logistics together, keeping customers in control of their cargo through high performing, low-cost software products. Their projects include a method of using blockchain to securely distributing SOLAS VGM data to the right supply chain parties. The same technology has been applied to create a secure audit trail for waste logistics; Traca uses a data adaptor to allow users to upload data to the blockchain without changing their own processes. Data and documentation are then shared using smart contracts, ensuring a compliant, verifiable, and immutable audit trail for the waste supply chain.
Navozyme: Navozyme exists to enhance the reputation and standards of the maritime industry. Their products include blockchain-enabled platforms for certificate management, port clearances, and vessel registration. By using blockchain in the certificate management process, Navozyme is able to cut fraud, reduce administration costs, and improve transparency.
According to the UK Government’s Office for Science, 80% of worldwide trade is carried by maritime transport. UK ports handle 5% of total world maritime trade. A new change is coming to this integral part of the British economy.
The shipping industry is beset with trust problems. Whether it is fake seafarer certificates, bad bunkers, or forged bills of lading, blockchain offers a viable solution. On top of the trust problem, blockchain can streamline the bloated paperwork requirement that comes with operating ships around the world.
Blockchain is set to change the world, including the way that we move goods around the globe. Thus, blockchain has the potential to breathe new life into an antiquated process, and benefit not only the shippers but the customers as well.
Cover Image: Oracle Blogs
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