Logistics is an area where blockchain can have a truly profound impact

Blockchain may have first gained global recognition as the technology behind Bitcoin, but it has since evolved to play an important role in increasing transparency and efficiencies across various industries.

In logistics, blockchain is touted to improve traceability within supply chains and bring about automation in commercial processes, where ‘smart contracts’ will speed up payments and reduce invoicing errors.

The promised potential has fueled business interest and investment — with US$2.1 billion expected to be spent on blockchain solutions in 2018.

This figure is projected to climb on a compound annual growth rate of 81.2 per cent to reach US$9.7 billion in 2021, according to IDC.

The research firm also expects blockchain spending to see robust growth in Asia-Pacific, climbing an average 90.7 per cent through to 2021.

In addition, IDC forecasts that 25 per cent of Global A1000 companies will use blockchain services to facilitate digital trust and, by 2020, 40 per cent of supply chains will use blockchain networks in production, alongside 25 per cent of banks and 20 per cent of healthcare organizations.

So, what exactly does blockchain promise to fix and, in particular, why should the logistics industry care?

The key focus here is trust.

Addressing the need for trust, transparency and efficiencies

For decades, business dealings and transactions have depended on the principle of mutual trust on the part of all parties connected in the supply chain or ecosystem.

However, as supply chains grow and become increasingly global, more stakeholders and processes are involved and business agreements have become tediously complex to manage and monitor.

This is where blockchain comes in.

Defined as a distributed ledger infrastructure, it securely records transactions between parties by essentially “sharing” databases between multiple parties involved in a supply chain.

It eliminates the need for intermediaries to act as trusted third-parties to verify, record, and coordinate transactions.
Sensitive data can be shared securely, enabling higher levels of transparency across supply chains and allowing consumers to make more informed choices about the products they purchase.

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Blockchain can also increase efficiencies by significantly reducing the need for red tape and paperwork.

A complex paper trail, for instance, involving multiple parties can be substituted with an automated process in which information is stored, securely, in a digital format.

It can be used to trace the lifecycle of a product or shipment as it makes its way across the supply chain — transferring from the manufacturer to logistics operator, to the wholesaler and retailer, and eventually the consumer.

Furthermore, the use of smart contracts can replace manual processes typically laid out in lengthy legal contracts.

Powered by blockchain, smart contracts are able to automatically enforce pre-established rules and processes while ensuring the terms are fulfilled by all parties involved.

Blockchain in action

Looking to tap such benefits of blockchain, Pacific International Lines, PSA International, and IBM have agreed to jointly develop products and services based on the technology.

The goal was to drive faster approval and improve efficiencies, security, and transparency within the region’s supply chain networks.

The partnership resulted in a proof-of-concept designed to track real-time cargo movements between Chongqing, China, and Singapore via the Southern Transport Corridor.

Built on the IBM Blockchain Platform, the application was put through a trial that successfully led to the transparent and trustworthy execution of multimodal logistics capacity booking.

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It also facilitated permission-based access control for participants in the supply chain as well as executions based on regulatory compliance.

DHL, too, has been actively assessing and exploring potential use cases of blockchain technology. DHL partnered consulting firm Accenture to build a working prototype that tracks pharmaceuticals, with the aim to prevent tampering and errors as they make their way from the point of origin to consumers.

By tapping the inherent irrefutability of the technology, DHL hopes to leverage blockchain to reduce the risk of counterfeits and save lives.

We believe logistics is an area where blockchain can have a truly profound impact, though further development is required to address concerns on sustainability and environmental impact.

In the near future, blockchain-use cases would likely focus more on improving efficiency and existing processes, by leveraging it for enhancing transparency and collaboration in supply chains.

Whether it can bring about positive change for companies will depend on how ready they are to embrace blockchain.

The technology is poised to disrupt business practices and models, and replace legacy processes to create new logistics value.

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By Pang Mei Yee, Vice President, Head of Asia Pacific Solutions & Innovation Center, DHL

Image Credits: kojinaka

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