Why the Blockchain can become a powerful force in the freight sector
While it remains an arcane and nebulous concept for many truckers working on the front lines, blockchain, could, according to Morgan Stanley, in the future generate around USD$500 billion for the US freight industry – a sector in which collaborative logistics platforms are growing in influence.
According to Gartner Research, however, it could take some time before blockchain begins to make a significant impact. It found that while over 60 percent of those interviewed thought blockchain to be an interesting idea, most were unsure exactly how it could be used to affect positive change in the freight and logistics industry.
And so what is the blockchain? IBM defines a blockchain as “a shared, distributed ledger that facilitates the process of recording transactions and tracking assets in a business network”. And in a recent fifty-page report, entitled ‘Blockchain in Freight Transportation,’ Morgan Stanley adds that “a blockchain must have four fundamental characteristics – immutability, security/automation, transparency and trustless operation”. [i]
One man fluent in all aspects of the blockchain technology is Craig Fuller, the Managing Director of the blockchain in Transport Alliance (BiTA) and founder of TransRisk, a leading data intelligence provider for the freight sector.
Fuller, who founded the BiTA forum last year to create a raft of internationally recognized standards for those incorporating leading-edge technologies – including blockchain – into their businesses, says that it breaks new ground “because it has the potential to introduce an extra, unprecedented layer of transparency, visibility, and security to every transaction made by those in the transportation sector”.
So how could those using freight exchange platforms, which specialize in load consolidation and facilitate the reduction of empty miles, benefit from this game-changing technology?
Craig Fuller: “Let me begin by making three qualifying points. Firstly, it would be a mistake to compare the blockchains that have been created to validate cryptocurrencies like Bitcoin, with the ones that are being developed for the freight sector. The blockchain in freight will use private/shared consensus ledgers instead of a public/distributed register model. Not only will this help to speed up individual transactions, but it will enable scalability of blockchain technology.
Moreover, collaborative logistics platforms differ in their service delivery ability. But if we take the example of a data-centric platform that already has a robust screening methodology in place, implementing the blockchain can lead to lasting change in a number of ways.
Finally, the power of blockchain architecture is that it is flexible. The freight exchange platforms that will get the most benefit out of it are the ones which understand the true value and importance of data. Therefore, those exchanges which build, own and operate their own blockchain frameworks need to create both open-source and proprietary blockchains, and incorporate fluid structures which enable members to apply individual blockchains to individual user cases.”
Q. Could you provide an example of user cases where freight exchange platform members would benefit from using blockchains?
Craig Fuller: “I believe that freight exchange platforms can benefit in a number of ways, but the enhanced visibility that blockchains provide stands out as perhaps one of the most compelling reasons to implement them in their networks.
Take compliance visibility, for example. Any collaborative logistics platform with a large virtual fleet must not only spend an inordinate amount of time monitoring the performance history of vehicles, but also ensure that both inhouse drivers and subcontractors are operating in compliance with applicable laws and company policies. Blockchains could revolutionize the time-consuming, but necessary process of auditing compliance. An immutable ledger can be automatically updated in real-time by IoT devices at every step of the transaction, providing enhanced transparency for drivers, carriers, regulators, and shippers.
In terms of vehicle maintenance, for example, blockchains would give an inhouse carrier absolute confidence that the subcontractor being tasked with his or her load has a vehicle worthy of the job. How? Because the blockchain would display an unalterable record of the vehicle service history spanning from the moment the truck rolled off the assembly line to the current day. If the vehicle in question was not being properly maintained, or the driver’s vehicle licence category entitlements were out of date, this could potentially be flagged by the blockchain allowing the platform administrators to take immediate action.”
Q. Maersk has partnered with IBM and is using the blockchain to digitally track the capacity status of millions of ocean-going containers. How viable is it in the future that freight exchange platforms could create blockchain applications which would provide the same level of visibility for fleet vehicles?
Craig Fuller: “Deciding what information can be viewable by each user on a blockchain is a decision that firms will have to make. Obviously, some pieces of information are sensitive like the rate, customer name, cargo-type, etc. Other categories of information have great value in publishing for the world to see, like a good driver safety record, a well maintained piece of equipment, active insurance policies, etc. Many of the current leading blockchain protocols include mechanisms to make entire transactions, or only sensitive parts of a transaction, private. Technologically, it is completely possible to see similar applications for land based freight. The main headwind to progress is not technology. The main headwind is reaching an industry consensus on what data can be shared to open up new capabilities, and eliminate redundant overhead costs that are borne by every participant in the market. Certain information must be kept private, to prevent giving sensitive information to competitors or criminals, but there are incredible cost savings to be realized by sharing some information in a neutral, trustless, immutable blockchain.
Secondly, when the IoT and the physical internet matures, there could be a possibility for first movers to create and develop blockchain applications which provide the freight industry with intermodal freight visibility, enabling those using freight exchange platforms to choose the quickest and cheapest route whether that be road, rail, sea, or air. However, that depends on a collaborative approach from industry and government, and probably represents blue-sky thinking at this current juncture.”
Increasing maturity of IoT devices and the physical internet represent such a promising development for transparency in freight markets. The data coming out of ELD and telematics devices is pristine and instantly available. It compares incredibly favorably to data recorded by hand, where errors and omissions are common. With high quality data, comes transparency for shippers and carriers. Both should be able to improve their operations and costs, significantly if the industry can reach a consensus on sharing certain information.
Q. The Transport Exchange Group already employs a rigorous and robust culture of compliance including a 17-step accreditation process and an online real-time feedback form to track driver performance. How can the blockchain improve it further?
Craig Fuller: “The blockchain can potentially enable freight exchange platforms to instill and inculcate an even greater level of governance, accountability and transparency than is currently possible. Why? Because the blockchain will facilitate the creation of smart contracts. The contracts could be created by the platform and stored on the Exchange’s blockchain. They would include the original carrier, the sub-contractor and the end-customer. Smart contracts are small sections of code embedded into a transaction, like a formula in a spreadsheet. The contracts automatically run, when their criteria are met. Possible contracts could include financial penalties for late delivery, which would be automatically deducted when the consignment was delivered. This is one way of reducing inefficiency in the freight supply chain.”
Q. To what extent could blockchain smart contracts help to eliminate fraud and give rise to a higher standard of service across the supply chain?
Craig Fuller: “Smart contracts not only standardize payments, but as the smart contract, which is unalterable, forensically details the contents of the cargo, potentially it would mean fewer product quality and quantity issues.
Secondly, the blockchain adds an extra layer of governance to an online performance feedback form because as it is an immutable ledger, it could potentially provide those looking to subcontract a load with performance data and up-to-date accreditation for drivers using other platforms too. This could help eliminate fraudulent activities and ensure that only the most professional and best performing drivers are used.”
Q. How long do you think it will take for the blockchain technology applications to become widespread in the U.S freight sector?
Craig Fuller: “As an industry trade group focused on the implementation of breakthrough technologies and discussing the viable infrastructure frameworks needed to support them, BiTA holds regular meetings with our members on blockchain implementation. While I cannot provide you with an accurate timeline of when the technology will become commonplace in the freight sector, I would expect the blockchain to impact some commercial applications in the next 12 months. The first applications are likely to be improvements to processes and systems the industry is already using (transaction management, package tracking, inter-firm communication). Many of the paradigm-shifting blockchain use cases that are currently being explored by BiTA first movers won’t see mass adoption for another 36 months.
“In the U.S., too, state governments have been quick to realize the value of the technology. According to Morgan Stanley, eight states – including California, Illinois and Arizona – have worked on bills, or are currently working on legislation that would enshrine the technology in law. We are optimistic about these developments, because if the technology is going to really affect profound change on a national scale, it will require the backing of the government.”
Sources
Morgan Stanley Research Foundation
Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype
Date: November, 24, 2017
FreightWaves website
[i] Morgan Stanley Research Foundation
Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype
Date: November, 24, 2017