Blockchain Technology for Smarter and Safer Logistics and Transportation
22 January, 2021
Blockchain is transforming industries by solving some of the decades-old issues that were halting progress. In logistics and transportation blockchain technology is increasing efficiency, decreasing costs, and enhancing end-user experience.
Over the past two decades, trucking, logistics, and commercial transportation industries have undergone a significant amount of technological innovation. In parallel, consumer demands for same-day shipping and the number of online transactions leading to expedited delivery have risen. Positive technological developments in logistics have enabled commercial transportation companies to efficiently service an all-time high demand, while, at the same time, adjusting to changing consumer preferences and expectations.
Nevertheless, the transportation industry still demands improvements. Blockchain technology, which became known from 2008 onwards through cryptocurrencies such as Bitcoin, is now a technology that promises to transform, amongst others, the logistics and transportation industries. Next to AI and machine learning, blockchain technology is expected to stimulate major improvements in these areas. Blockchain is widely embraced by organizations, education institutions, and policymakers around the world.
Read on to find out about blockchain, how it crossed into the world of commercial transportation and trucking, the opportunities that blockchain is trying to capitalize on, how blockchain is changing the face of trucking and freight, and finally, the successful companies that already leverage blockchain.
What is blockchain?
Blockchain records the expanding list of network transactions and organizes them into a hierarchical chain of blocks. Network participating nodes share and ensure the synchronization of the distributed database without requiring a central authority. The blocks are committed to the global blockchain after satisfying the decentralized consensus procedure.
The addition of valid transactions to the blockchain is guided by cryptographic algorithms that, at the same time, secure the network. Crypto algorithms make the blockchain immutable and guarantee the integrity of the data.
The decentralized, immutable, and inherently secure nature of blockchains makes them an attractive medium for the peer-to-peer exchange of information, as is the case in logistics systems. Since the network always guarantees a secure consensus, participating parties can build trust without relying on a third party.
Industry issues that led to the blockchain adoption
Blockchain in trucking and commercial transportation pledges to create document and transaction transparency across the freight landscape, enhancing the efficiency, agility, and innovation capacity of supply chains. Blockchain has inherited security features that separate it from traditional IT systems used in logistics. As such, blockchain has great potential to solve many pain points in the freight and delivery sectors.
Payment delays and disputes
According to a recent transportation industry report, around US$ 140 billion a day is held up due to payment disputes. Companies suffer long delays receiving payments, sometimes as much as 42 days. Such delays and disputes cause millions of dollars of capital to be blocked, which could have been utilized for service improvements.
High processing and administration costs
In the logistics industry, the excessive reliance on paper transactions introduces very high processing and administration costs. In one study, IBM and Maersk tracked a shipping container of flowers from Mombasa in Kenya to Rotterdam in Holland. The main finding of the study was that even this simple refrigerated shipment went through 30 different organizations and required over 200 separate communications.
Staying in the right temperature range is not easy
Many sensitive global pharmaceutical shipments experience temperature deviations. Due to these deviations, many valuable biopharmaceutical products never make it past customs, as they exceed acceptable temperature ranges, resulting in wasted transportation costs, additional administrative inefficiency, and in most cases, a loss of the product itself.
Less-than-truckload (LTL) shipping
Matching shippers with carriers is a difficult task in logistics because most companies only have six or fewer trucks. This situation results in truckers driving billions of miles every year with partial or empty truckloads, creating losses of millions of dollars on a yearly basis. It also raises shipping costs for consumers.
The statistics show that generally truckers in the US drive an estimated 140 billion miles per year.
Opportunities blockchain brings to the trucking industry
Logistics companies depend on their ability to adapt to changing consumer needs and implement new technologies. Blockchain in logistics and trucking is an emerging technology which promises to lower shipping costs and eliminate inefficiencies. Blockchain can solve decades-old industry issues such as long dispute resolution processes, low administrative efficiency, and poor and insecure order tracking.
Blockchain technology is set to revolutionize many industries. Freight and shipping companies can benefit from blockchain to improve their delivery processes. A more effective method of tracking goods could significantly boost productivity levels. Blockchain improves supply chains by enabling faster and more cost-efficient delivery. It also enhances the traceability of goods, enables better communication between partners, and, most importantly, eases access to monetary resources. Due to its decentralized nature, blockchain removes the need for intermediaries in payment processes. Unlike traditional financial services, blockchain facilitates faster transactions by allowing P2P cross-border transfers with a digital currency.
Immutability and security
Blockchain helps companies track the exchange of products along the supply chain. After the successful exchange of goods and settlement of smart contracts, the data enters the public or private blockchain together with algorithmic signatures that are very difficult or impossible to change. To accomplish this, blockchain uses hash functions that can be seen as unique mathematical data fingerprints. Supply chain transaction data is stored along with information on authors and time stamps. Everybody with access to the blockchain can track this information and it can even be shared with customers to increase end-user transparency.
Integration with other technologies? No problem
Blockchain easily integrates with other technologies to get even better results. Along with IoT tracking technology, blockchain can be used to collect accurate data about every step in the shipping process. For example, when a customer receives damaged goods, it can be checked when and where the damage happened. The IoT system can collect data from the sensors installed on the vehicle, and blockchain tracking can show the person handling the product at any given time. Tracking food and pharmaceutical items for safety and quality can also be done using blockchain and environmental sensors.
Smart contracts and payment automation
The digital, self-executing contracts on the blockchain allow for instant transaction settling. Smart contracts are self-contained and have the necessary information preprogrammed for the transaction to be valid. The best feature of smart contracts is their automation. For example, a smart contract automatically releases funds after the necessary verification of shipping documents has been done. Companies can get paid instantly after providing documents that verify their custody of the goods. With smart contracts, there is no need for the manual release of funds as the products move through the supply chain.
Theft and fraud minimization
Reported cargo frauds and thefts cost the US $30 billion per year, and unreported cases will add considerably to this total. To prevent this in the industry of logistics and transportation, blockchain can implement rules that demand the presentation of original government-approved photo identification documents for pickup or delivery. The integrity of the supply chain process stays safe with blockchains since records can be validated only with the consensus of all participants. Moreover, it’s easier to trace any document back to its original version and restore it.
Blockchain enables the performance of delivery tracking via smart contracts. At the same time, blockchains aid in monitoring the performance history of carriers and suppliers. The performance of individual vehicles, such as trucks within the fleet, can be tracked too. Blockchain can help track the performance history of individual carriers by recording data about pickups and deliveries. This data helps logistics companies make better decisions while on-boarding the carriers and ultimately improving the supply line.
Monitoring real-time freight capacity
IoT devices offer many benefits in logistics as they can stream data to the blockchain. When IoT data is combined with external data such as traffic or weather, smart algorithms are employed that optimize cargo routes while minimizing the costs of delivery. As with IoT, the ability to stream information transparently offers the advantage of capacity monitoring. Since capacity can change throughout the day, blockchain allows participants to observe and work with shifting capacity demands in real time.
Faster and more efficient payment and pricing processes
Blockchain keeps all communication records between everybody involved in the delivery process. In blockchain any action is trackable, and due to its security features, payments are more secure and forged data can be easily identified. Thanks to the decentralized nature of blockchain, money transfers have a low risk of fraud or error. With smart contracts, payments are issued automatically as soon as the buyer has met all the criteria demanded by the consumer. Payment and invoice management is faster and more precise.
Proving the origin
The use of RFID tags is not a new trend but an established practice in the supply chain. Blockchain enables companies to pair RFID tags with sensors to ensure product quality through retaining a full record of provenance. Moreover, the technology can detect fraud in any part of the delivery process, making it particularly useful for supply chains such as pharmaceuticals.
Blockchain benefits in logistics, trucking, and freight
The answer to the question of how blockchain is useful for logistics is multifold, since blockchain has many inherent advantages that make it ideal for logistics.
Data transparency and accuracy
One of the main problems in the world of logistics is the questionable accuracy of information. The main reason for the lack of transparency is the fact that supply chain companies frequently keep their data secret.
Although transparency may not be supported by competitive markets that view information asymmetry as a competitive advantage, there are situations where transparency builds trust and can be competitively advantageous. Where this is the case, blockchain can make a significant impact, as it offers a decentralized and transparent way to manage supply chain data.
Smart contracts for fulfilling agreements
A smart contract is a blockchain-based solution that facilitates automated legally binding agreements along the supply chain. With the help of preprogrammed rules, participants in a smart contract can securely evaluate and monitor the stages of the logistics operation. Smart contracts also enforce compliance with the rules of a transaction, minimizing risks and uncertainty. Smart contracts are especially powerful in enabling smaller firms, such as start-ups, to enter the logistics business.
Security through decentralization
Information security is becoming a growing concern in modern logistics systems. The issue with the current systems supporting the IT operations of supply chain management is their centralized nature. As the security systems are far from perfect, centralized IT systems allow a malicious intruder to have complete control once access is gained. The attackers can theoretically change or remove any data stored within the breached system. Since blockchains are decentralized, there is no single point of entry that can give a user the ability to unilaterally make changes. The complexity of the cryptographic algorithms involved makes it nearly impossible for a bad actor to alter the data.
Permissioned blockchains are access-restricted and have strict rules regarding access to data, who can broadcast data, and how consensus is reached. These permission-based environments are often employed by multiple organizations that wish to have a common platform for performing transactions and communicating information, as is the case in supply chains. Private and semi-private blockchains have additional layers of security when compared to public blockchains. The permission system in these blockchains is tiered, usually allowing any member to access more general information, while more sensitive data can only be accessed by selected members. Such a system offers increased data security while allowing all parties free access to the information they need to do their jobs.
Better asset management
One of the strengths of a blockchain network is the ability to track assets and resolve ownership issues at any time. On an e-commerce blockchain, all participating parties are able to view information about the products and services offered and their corresponding transactions, conducted via smart contracts. After the completion of the transaction, buyers can view its detailed status. Transactions cannot be modified once they are completed. All parties have access to all corresponding updates, which take place in real time.
Inventory tracking is a complex process and demands a lot of resources. Blockchain technology offers logistics companies the ability to effectively manage their products at the micro level while maintaining macro-level visibility. For example, companies can pair blockchain with the Internet of Things (IoT) and mobile-based technology to enhance their monitoring and real-time tracking for a fraction of the cost compared to digitizing their traditional systems. With the integration of existing technologies like Bluetooth, Wi-Fi, GPS, and RFID, companies can create a more responsive system that can track assets at any point in time, since it moves throughout the supply chain.
Blockchain reducing risks in transportation
Next to the many advantages that blockchains offer, there are also some risks. Blockchain immutability is one of its most advantageous characteristics, but it also creates risks, as all data entry is subject to human error. Another risk is the loss or theft of the private keys necessary to participate in the blockchain.
Most other concerns stem from a belief that the adoption of blockchain in transportation and logistics will be just another imperfect technological adaptation. Industrial companies are wary of the mass adoption of new technology, as they have witnessed some failures. Electronic Data Interchange (EDI) has been the standard system in the logistics industry for over 30 years, and the industry still lacks an overall guiding standard. As a result, there exist multiple versions of this technology that causes inconsistencies from company to company, contributing to industry-wide issues rather than solving them.
Nevertheless, it’s not the case with blockchain. If implemented correctly, blockchain will help address numerous issues and allow logistics companies reap the benefits. Besides, the technology is undergoing constant improvements and is adaptable to all the industry’s requirements. A large number of world-renowned companies have started utilizing blockchain in logistics and transportation and they’ve been well satisfied with the results so far.
Blockchain in Transport Alliance (BiTA)
Blockchain in Transport Alliance (BiTA) is the biggest commercial blockchain alliance in the world. BiTA has about 500 members from more than 25 countries, which collectively generate over US$1 trillion in revenue each year.
BiTA members are primarily from the freight, transportation, logistics, and other affiliated industries.
The alliance members have put forward a common mission – to promote the introduction of new technologies. To work successfully towards this, they develop industry standards, educate the industry participants about blockchain technologies, and encourage the implementation of these technologies. In addition, BiTA members put a lot of effort into developing and implementing a common framework and standards on the basis of which transport, logistics, supply chain, and freight organizations can create revolutionary blockchain applications.
BiTA’s board of directors includes representatives from large logistics companies such as FedEx and UPS and transportation companies such as Delta, BNSF, and Daimler.
Globally renowned companies introducing blockchain into the logistics industry
Due to the promising benefits of efficiency, transparency, and flexibility, many logistics companies use blockchain to increase their competitiveness.
FedEx has created a blockchain-based platform to effectively resolve customer disputes. To make this process much easier, the company utilizes blockchain to exchange shipping information between suppliers and retailers. FedEx’s blockchain platform allows for the efficient tracking of packages even when they are not in FedEx’s possession. This integration is the first of a kind and it spans across different companies. To make the solution more acceptable, the company has joined BiTA.
Maersk, one of the world’s largest shipping companies, is digitizing international trade with the help of smart contracts and blockchain. Their tested system allows each participant in the supply chain to track supply chain transactions securely with full integrity and confidentiality. With the help of Maersk’s blockchain systems, all of the participants (shippers, port operators, forwarders, and regulators) know the location of the goods in transit and can access all of the important data and documents in real time.
ZIM, one of the top 20 global carriers, has recently piloted its blockchain project, intended to digitize the bill of lading.
The bill of lading is a very important document in ocean shipping as it contains all the crucial information about the shipment. During the trial run of this pilot, ZIM and other parties successfully issued, transferred, and received electronic documents via the blockchain. According to ZIM, digitizing the shipping documentation process will reduce time utilization, complexity, and costs for all parties involved.
Based in Los Angeles, CA, Shipchain has developed a platform using blockchain to support the end-to-end shipping process. The Shipchain platform shares the location and condition of goods with all the companies and organizations involved. The platform makes it easier to trace the origin of goods and improves supply chain efficiency through a track-and-trace system.
Yojee is a digital logistics and transportation management company. It develops logistics solutions that utilize blockchain and artificial intelligence to optimize and manage delivery operations. Yojee has signed a pilot agreement with UPS Asia Group, a subsidiary of United Parcel Service, to utilize blockchain technology in the UPS supply chain environment.
IBM is a multinational technology and consulting company that offers numerous blockchain solutions, too, with IBM Food Trust being just one of them. The solution combines supply chain modules with core blockchain functions. The platform provides permission-based access to food ecosystem information for network members, enabling them to validate all data and control information sharing.
Walmart is using blockchain technology to improve supply chain transparency and the provenance of products. Since 2019 Walmart has required lettuce and spinach suppliers to use a blockchain database. With the help of the system, Walmart can manage any contamination situations, allowing it to ensure food tracking, traceability, and safety. Walmart is now able to guarantee the quality of their products which also saves them money and keeps them accountable.
Chronicled deploys blockchain-based decentralized supply chain platforms and protocols to improve global commerce.
Their solution aims to streamline the B2B trade. Chronicled has also developed a blockchain platform that utilizes IoT and AI technologies to automate processes such as the tracking of goods and financial transactions. The IoT devices provide detailed information about the transfer of goods and the environmental conditions of the goods shipped.
Everledger is a digital permanent global ledger that tracks and protects valuable items through the Bitcoin blockchain, providing a platform that verifies origin and fights insurance fraud.
Everledger started out with diamonds, intending to expand into other luxury goods, high-value items that depend on paper certificates and receipts for records of origin that can easily be lost or altered. With Everledger, the record is tamper-proof and immutable, and therefore trustworthy. It also provides a smart contract platform to facilitate the transfer of diamond ownership, which helps insurers recover items reported as lost or stolen.
Provenance uses blockchain to improve transparency in retail. All members of the network can view important information about each product, for example, data on materials, ingredients, suppliers, storage conditions, transportation, equipment involved, etc.
Provenance retailers can document the origin of their products and showcase their supply chains on a ledger that also creates a complete history of the given product by adding information about conditions of storage and transportation. Provenance uses blockchain to hold retailers accountable while helping members make higher quality and more trustable products.
TradeLens is not a company but a prominent, blockchain-based, open, and neutral supply chain platform. TradeLens allows you to share information and collaborate in supply chains. It helps drive innovation, reduce trade problems, and ultimately boost global trade.
The platform has been developed by IBM and GTD Solution to meet the needs of shippers and supply chain operators around the world. TradeLens aims to connect the ecosystems of supply chain participants, foster collaboration and trust among the main players, drive true information sharing, and spur innovation.
Blockchain has transformational power in logistics and supply chains. The inherent properties of this technology are already solving pressing challenges. Data transfer between suppliers, manufacturers, distributors, retailers, and consumers via blockchain is highly secured. If the information is already recorded in the block, it is not possible to change it, and this negates the possibility of theft and fraud.
The traceability of the physical movement of products is also significant for the supply chain. Traceability increases trust, as the integration of the IoT with blockchain allows the physical location and environmental condition of the goods to be tracked. The blockchain stores this data, and each participant in the supply chain can check the quality of the product at any time.
Despite the many advantages, the implementation of blockchain in the transport and logistics sectors still requires a professional approach. We at PixelPlex specialize in the development of public and private blockchains for supply chain management and logistics. With our proven track record of implementing similar solutions, we have established ourselves as serious players in this domain and are always ready to help you out.
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