Working on the highways and seaways to paraphrase one Sam Cooke, blockchain has made much noise in the maritime press this year.
A digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly. Origin: Early 21st century: from block and chain. That’s the Oxford English Dictionary reference to what blockchain is, a word shipping has heard a great deal about in the first few months of this year.
Maersk made headlines in March by teaming up with IBM for a new initiative which the pair claimed in a release could “transform the global, cross-border supply chain”.
The blockchain solution based on the Hyperledger Fabric and built by IBM and Maersk will be made available to the shipping and logistics industry. The solution will help manage and track the paper trail of tens of millions of shipping containers across the world by digitising the supply chain process from end-to-end in order, the pair claim, to enhance transparency and the secure sharing of information among trading partners.
“We expect the solutions we are working on will not only reduce the cost of goods for consumers, but also make global trade more accessible to a much larger number of players from both emerging and developed countries,” claimed Ibrahim Gokcen, chief digital officer at Maersk.
The costs associated with trade documentation processing and administration are estimated to be up to one-fifth the actual physical transportation costs. A single vessel can carry thousands of shipments, and on top of the costs to move the paperwork, the documentation to support it can be delayed, lost or misplaced, leading to further complications.
“We believe that this new supply chain solution will be a transformative technology with the potential to completely disrupt and change the way global trade is done,” said Bridget van Kralingen, senior vice president at IBM. ”
Commenting on the news, KD Adamson, founder of Futurenautics, tells Maritime CEO that 2017 is shaping up as the year when platforms and ecosystems emerge that will shape shipping’s future.
Maersk and IBM’s announcement along with HSBC and Bank of America’s recent trade finance blockchain point to a big shift in global trade, she reckons.
“Blockchain as an underlying technology is important, but what it’s delivering is transparency, security and automated trust via a distributed digital ecosystem, and that’s strategically key,” Adamson says, adding: “Blockchain, if it can be adequately scaled, enables autonomous smart contracts and is the foundation for smart regulation for shipping—both will be profoundly disruptive.”
John Taxgaard from Ericsson argues that shipping is an industry of highly specialised information flow, middlemen arbitrage and asset play, but so much of what happens is either needless duplication or simply inefficient.
“The industry needs to need a move from anecdote to analysis and that means bringing new people and techniques into the mix. The automotive industry, retail and airlines are all using proven technologies, not necessarily talking about unproven future concepts,” Taxgaard urges.
Jody Cleworth, CEO of UK freight forwarder Marine Transport International, reckons blockchain has the ability to empower the shipping industry into a true digital age.
“The sheer volume of containers processed per year means that safely decentralising the management of these containers will radically reduce the complexities of shipping,” Cleworth says. “A grass roots approach in collecting and storing information on the blockchain is how shippers will be able to reap the full benefits of the technology,” he adds.
So will blockchain become the game changing technology for the shipping industry?
The two co-founders of Copenhagen-based blockchain solution provider BLOC, which is short for The Blockchain Labs for Open Collaboration, certainly hope so.
“The maritime industry is facing a tough and unpredictable future. Overcapacity, trust issues, decreasing rates and increasing competition from non traditional players and outdated systems will have a fundamental impact on the industry’s long term prospects,” says Deanna MacDonald, co-founder and CEO of BLOC.
MacDonald believes these challenges along with higher demands from society and cargo owners for transparency, traceability and accountability in the logistics chain will drive the industry towards exploring and implementing new solutions like blockchain.
Speaking of the challenges for development of blockchain in shipping, MacDonald reckons one of the biggest challenges has been the lack of clarity and understanding as to what blockchain actually is and this lack of understanding is not limited to the shipping industry.
“On a general level there are technical barriers right now that cause relatively high transaction costs that may act as a hindrance in the short term and also future challenges that must be met to ensure existence of blockchain,” says Maurice Meehan, the other BLOC co-founder.
Meehan used to work with the AP Moller Maersk Group, where he led the development and implementation of sustainability strategy in various business units.
According to Meehan, such barriers include a lack of storage infrastructure, the high carbon footprint associated with it and the fact that there are few blockchain developers and even fewer ‘miners’ that can validate transactions to keep up with demand.
“On the organisation level, due to the fact that blockchain is still in its early stages of development and is rapidly changing, it makes it a difficult technology to concretely assess, pin down and apply just yet because an application that is missing today might be there tomorrow,” Meehan says, adding that the recent announcement from Mærsk and IBM to adopt blockchain has helped clear up much scepticism in trusting the technology.
In MacDonald’s opinion, leapfrogging is likely not an option for the shipping industry to adopt blockchain due to its breadth and complexity, but the firm sees blockchain as both a transitional and a transformational technology that is accessible to companies of all sizes.
“Transitional in that it will contribute to creating a shared commons of digital assets for the shipping industry and transformational in that applications built on top of this shared database will purposefully utilize the digital assets stored to provide more efficient and streamlined processes and new value streams throughout the global shipping industry,” MacDonlad explains.
Dr Roar Adland, shipping chair professor at the Norwegian School of Economics, muses how soon until ship finance digitises and we can all chip in online to own a cape.
“Technology is changing the world even when it comes to ship finance, enabling fractional ownership and the secure and seamless transfer of titles to micro shares through blockchain technology,” he says, continuing: “Pretty much anything can be digitised – houses, driverless cars, racing horses, intellectual property and, indeed, your oil cargo or capesize bulker. Once it is, micro shares of any such digitized assets could in theory be bought and sold on online exchanges, continuously and by anyone.”
Neville Smith, a columnist for this magazine and founder of Mariner Communications, neatly concludes on this technological revolution, saying: “Blockchain’s origins in the crypto currency make it appear shady but financial information service providers are already pushing its adoption as a means of clearing the millions of equities, derivatives and other trades made globally every day. The same is true of larger shippers, carriers and ports – anyone in fact with complex multi-party physical-financial transactions to complete.”
Prepare to read a great deal more about this innovation in the months and years ahead.
This article first appeared in the just published latest edition of Maritime CEO magazine. Splash readers can access the full magazine by clicking here.