In this article, I’m going to explain what blockchain logistics is and why it is important. TLDR, Blockchain logistics holds out the promise of changing the logistics industry by making almost every logistics and shipping task easier and faster.
To explain blockchain logistics clearly you first need to understand the problems that the logistic industry faces.
Key Supply Chain Problems
First off manufacturers and retailers see logistics as a commodity. It’s simply a way to get their goods from A to B as cheaply and quickly as possible. Goods in transit aren’t being paid for and consume precious inventory. This puts a lot of pricing pressure on logistics companies.
Secondly, everything is paper-driven. Not always literally, but the process of getting goods from A to B is driven by dozens of parties exchanging digitised pieces of paper. These may be called certificates, BLs, SDS, emails, excel reports or whatever. However they are described each acts as a piece of paper; someone has to read it, check that the information is correct, then share it with someone else depending if it is correct or not.
This is the same way that things have been done since salt traders (fascinating article on the Chinese Salt Trade) built huge mansions on the Yangtze, or since Marco Polo and Sinbad the Sailor tried their luck at international trade.
The problem with these supply chains is that everyone in them has information that other parties need. Sharing that information is often tied to whether the terms and conditions of contracts have been met.
Bill of Lading Example
For example, I once didn’t give someone the Bill of Lading he needed because he hadn’t paid me before the goods were loaded. As a result, the goods sat in demurrage in Singapore for 9 months before we reached an agreement.
In this case, my forwarder didn’t know that I hadn’t been paid so instructed the warehouse to release the steel to the trucker who took it to the port, who loaded it on board. Lots of people needed to exchange paper with other people in order to keep things running smoothly. If the paper isn’t exchanged on time and correctly then you get problems.
Equally, if deceit is involved, perhaps my customer said he’d paid but he hadn’t, life for a supply chain manager often comes down to an argument of who said what when. This ‘he said, she said’ is expensive and resolving it and claims, further saps the profits of the sector.
Blockchain Logistics Explained
How does blockchain help here?
To understand blockchain logistics we need to understand how blockchain works.
We could have a common database for the supply chain. If we did that then everyone could see everything.
The problem with this approach is that too much would be shared. The information you shared could be used against you. The information you post or receive could even be false. The shared database falls down very quickly under these conditions. That’s why everything still remains as a paper transaction.
Blockchain is a distributed ledger – or record of transactions. What is key for our purposes is that if you make a change to the record you have to get other people to agree that you have made a change. Once you do that then your change becomes permanent. It can’t be deleted, edited or denied.
The Benefits of Immutability
This is what blockchain calls immutability.
This changes everything. You now have a database where every change is verified by other parties. It’s also clear that you either said something or you didn’t. This means that the database can be trusted, and that enables us to use the database to digitalise the supply chain rather than relying on paper.
What happens if someone still lies? If they lie or simply don’t meet contractual obligations – deliberately or not – then this is obvious in real-time. We can use smart contracts that automatically pay if people make the right entries in the database (or charge them if they make the wrong ones – such as shipping a day late).
I spoke to a number of supply chain managers earlier this year. I asked them how many emails they got each day. The average was almost 200. That’s 200 emails they had to check for shipment status. Check each email to see if something was going wrong, or sometimes, wasn’t reported to be going right. Blockchain logistics means that we can get rid of those emails – and replace them with a dashboard that gives green lights for the projects going well, and red lights for the ones you need to pay attention to – with little or no effort.
If you think about 30 supply chain managers in the average supply chain, each dealing with 200 emails each day – that is close to a reduction of 6,000 emails a day. Not a bad thing to do!
If you’d like to read more about transparency in trade lanes, you can download our whitepaper here. Alternatively, give us a ping and book a LogChain demo.
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