Stefan Kukman, founder and CEO of CargoX, has some advice to shipping lines pondering how best to integrate blockchain technology into their daily operations.
Blockchain is here to stay – that is the key takeaway after IBM has announced their TradeLens platform for logistics. By doing this, they have validated blockchain as a good business technology, and also gave wings to smaller, more agile developers of solutions of the industry. Some of them focus on verticals, while others specialise in specific processes, such as cargo tracking, or documentation handling and ownership transfer (bills of lading, for example).
This affirmation by the blue monolith, as IBM was once considered, will enable the progression of the global business, and especially logistics, into a valid and secure ‘internet 3.0’ environment. A completely new, blockchain-based business paradigm is building-up critical mass, where data and certain information or document ownership will be the norm, and security will be guaranteed by an almost infinite number of validators. Simply put – a safe internet for always valid business data and transactions is emerging.
But these solutions will only bring advantage to those who jump on board – and who jump on the right board, as well. And because shipping has traditionally lagged other industries in terms of information technology, this is an opportunity to jump steps, step-up the digitalization for freight forwarders, exporters, and importers, and switch into fifth gear.
This revolutionary period is not a coincidence, as it was brewing for quite a long time. It was noted in a research by INTTRA, the largest neutral network, software and information provider at the center of the ocean shipping industry, when they published their research findings in April – over 53% of the executives in the industry were interested in the distributed ledger technology, meaning blockchain technology.
Even though the blockchain tech as such promises to make data in the internet verifiable, validated, and data transaction processes immaculate, and provide an extremely cost-efficient, functional and production-ready network infrastructure – this is only valid for a public blockchain. Ethereum, currently, is the most well-known, and others are following. But private blockchains, such as that used by IBM in TradeLens, can be considered just block-chained closed systems, where a single provider can manipulate the set-up and control the whole environment. Simply put – this might turn out as a bad approach, even if it is implemented with best of thoughts and functionalities on top. Blockchain advantages are only reasonably maximized when they are implemented publicly, on a public blockchain network (such as the Ethereum Network) and with maximum transparency – while data and transactions through them can be anonymized and safely encrypted to avoid disclosure.
“Successful early blockchain implementations will satisfy at least three of the following criteria: a narrow, well-defined business problem; existing slow, complex and paper-based processes; many participants; multiple organizations, all of which need reliability and transparency,” said Charles Brett of Enterprise Times.
As TradeLens was announced with a hefty list of partners from various segments, no shipping line except Maersk and PIL, was a clear signal that other partakers in the market might try to avoid it, as they might feel a vendor lock-in, or even get engaged into a competitor’s solution. Still, the platform description promises quite a lot of functionality – considering that companies who buy into it are willing to pay an expensive subscription and hefty integration services to IBM, as there is currently no availability of existing online user interfaces for the application. This means it is unusable without a larger investment.
When asked about the IBM TradeLens, and other blockchain developments in the field, Roar Adland, a visiting scholar at the Massachusetts Institute of Technology, Center for Transportation and Logistics and a shipping professor at the Norwegian School of Economics, says that the giant’s Achilles’ heel is obviously the perception that a permissioned (private) blockchain is not a decentralised solution, so what they are proposing is effectively a very inefficient way (in terms of energy consumption and duplication of data) of setting up a database. Importantly, competing carriers will always have the fear that sensitive commercial data about contracts and customer relationships can leak to competitors – which is obviously partly why they are in this mess of ‘siloed’ data and documentation to begin with. Open platforms may be able to solve this perceived problem of independence and neutrality but will have the challenge of driving industry-wide adoption as an outsider and ensuring that private data remain so. The view of anti-competition authorities may also play a role here.
Other, more agile and independent blockchain solution providers, are taking the open route to success. They usually are not intertwined with large cargo shipping companies, which gives them the advantage of being open, independent and neutral, which means they automatically can gain more trust within the industry. CargoX, offering a blockchain-based Smart B/L solution, was just one of these, who jumped the market and sprinted from funding to production-ready solution within half a year.
Companies will go down either one of the two paths – integrating slowly and painfully a monolithic solution that is expensive to adopt, more expensive to use than the more agile competition, but wide and deep in features, yet with a chance to fail miserably; or they might prefer to go slowly, integrating new processes one by one, releasing pressure in specific pain-points of their business while increasing their profit margin by cutting cost. A cathedral versus a bazaar.
Yet, there is completely no reason why one solution, one methodology of building the IT strategy, cannot coexist next to the other, or both are integrated to fulfill compatible tasks and form a suite of tools for the modern logistics company to take advantage of when digitizing their whole business.
“If one was to be a pessimist, it could be argued that Maersk and IBM have now spent more than half a year to get stakeholders on board. Apart from PIL, they’ve yet to succeed in doing so,” said Lars Jensen, CEO of SeaIntelligence Consulting, about the lack of carriers joining the IBM TradeLens scheme.
One thing is clear, though. The sooner companies start to embrace blockchain, the better. New data handling and validation capabilities, transparency on a per need to know basis, secrecy, and foremost – document and data transaction safety, always.
What is beautiful is that public blockchain acts as a cloud, publicly available infrastructure – so there is no need for huge installation of new technology in-house.
So these are all the technical fundamentals that enable companies to build new services and provide their customers with an added value that sets them apart from the competition.
Each company that wants to give blockchain solutions a try will have to decide whether a public blockchain is in its interest or are they satisfied with closed, private, proprietary infrastructure where things might be influenced by one major player in the cargo market.
It is the fact of using the public, verifiable blockchain network, that really gives the additional transparency dimension to certain solutions – and lack of using public blockchains that pushes the other solutions back by a mile, as they will still need to be considered as closed and centralised, even if they are otherwise ‘open’ (by other parameters of the solution). Many potential users might try to avoid these altogether.
Decentralisation, in the case of logistics, simply means a wider trust platform, on top of which new value is being created.
And the technology will only improve documentation and data exchange capabilities, visibility, transparency, and legitimacy, while ships will still need to travel the oceans for weeks.