The Future of Ocean Freight – Unpacking the Logistics Blockchain Goldrush
“Glaring inefficiencies – the company I was with wasn’t helping the industry move forward, despite the clear need for something new.” – Stephan Kukman, Founder, CEO, CargoX
“Right now there are thousands of people on scooters driving around southeast Asia with backpacks full of bills of lading–negotiable financial instruments! That’s broken and needs fixing.” – Matthew Tillman, CEO and cofounder of Haven, Inc.
“In many cases, the costs associated with managing the information related to a shipment can rival the costs of actually moving the shipment[.] – Aaron Lieber, Program Director, Blockchain Trade Offering Management, IBM
Stephan Kukman had more than a decade under his belt at a major logistics company, but the more time he spent on the job, the more frustrated he became with the industry’s unwillingness to address what he called, “glaring inefficiencies.” Reflecting on those days, Kukman explained that, “the company I was with wasn’t helping the industry move forward, despite the clear need for something new.”
That’s when Kukman decided to strike out on his own, determined to tackle one especially glaring weakness in the supply chain – paper bills of lading. But he’s not alone. “Right now there are thousands of people on scooters driving around southeast Asia with backpacks full of bills of lading–negotiable financial instruments!” agreed Matthew Tillman, CEO and cofounder of Haven, Inc. “That’s broken and needs fixing. Global trade moves slowly because the movement of money is almost as slow as the movement of cargo.”
For hundreds of years, shippers, carriers, and freight agents relied on couriers to get these critical documents into the right hands. Humanity is exploring quantum computing, cars are learning to drive themselves, but the shipping industry is still spending $5 billion dollars a year transferring paper documents by courier.
That realization prompted Kukman to quit his job and found CargoX. These days, he spends his days working on something that will replace outdated paper documents with blockchain-based bills of lading, called Smart B/L. A global first, CargoX’s Smart B/L solution is based on a trusted decentralized platform that shaves days and hundreds of dollars from the transport and archiving procedures associated with bills of lading.
Kukman is part of new breed of innovators that are taking the industry by storm, but he certainly isn’t alone, and he admits that competition is fierce. But rather than worry about who is coming after his lunch, Kukman regards other entrants, both startups and established players, as evidence that the industry is on the verge of a major breakthrough.
There’s more than one way to crack this nut, just ask Peter Ludvigsen, who founded a startup called Blockshipping. He’s been working in the container industry for almost four decades, including as CIO for Maersk Line. Blockshipping wants to change the way shipping containers are managed, using the sharing economy model in the shipping industry – it’s going to be an Airbnb-style service for containers, under the name Global Shared Container Platform (GSCP).
“Five years out none of the carriers will own their containers because they have become accustomed to using GSCP,” Ludvigsen said. “In the GSCP ecosystem, we foresee the emergence of Blockchain investment syndicates which will effectively democratize investments in containers for ordinary citizens.”
Using new technologies like blockchain, and new business models like the sharing economy, companies like Blockshipping and CargoX are forcing storied companies to adapt or get left behind. Almost unanimously, carriers, forwarders, and other logistics companies are embracing the vision.
The big players are just as motivated. Earlier this year IBM and seafreight giant Maersk announced plans to extend their existing partnership and create a joint venture to develop a global trade digitalization platform using blockchain technology.
“We believe that IBM Blockchain technology can improve the ability of private and public-sector entities involved in maritime shipping to communicate with each other in a secure, permissioned way,” Aaron Lieber, Program Director, Blockchain Trade Offering Management, IBM told Shipping and Freight Resource. “In many cases, the costs associated with managing the information related to a shipment can rival the costs of actually moving the shipment, and we expect that the platform we are building with Maersk will help drive down the total costs of these communications and information flows.”
Above: Watch how a blockchain based smart Bill of Lading works
David vs. Goliath
The presence of startups like CargoX, and established companies like Maersk and IBM is setting the course for a showdown over how the post-blockchain revolution shipping industry will look.
In a winner-take-all scenario, there’s two possible market outcomes. The first looks remarkably similar to the current situation, with major shipping lines dominating the industry, while the second is market neutrality, with new companies like CargoX establishing roles as platforms where shippers can manage shipments, process documentation such as bills of lading, and settle finances using dollars, euros, and increasingly, cryptocurrency.
While the outcome is likely to be a combination of both, let’s examine how the market could end at these disparate outcomes.
“When we engaged with Maersk it was because we felt that each of us brought something different to the discussion of how to solve the industry’s long existing pain points,” IBM’s Lieber said. He explained that in addition to industry expertise, Maersk’s massive operations in shipping, freight forwarding, and port terminal operations gave them the muscle to reach the market in a big way. “Together we felt we could present a solution for the global shipping industry to address some of its greatest pain points. We believe that the solution we are bringing to market is an industry-wide platform from which all carriers will benefit.”
And while CargoX and Blockshipping contend that neutrality is paramount, IBM is confident that “a governance system for the solution involving the other carriers will prevent any carrier from having either a cost or informational advantage over the others, including Maersk.”
But will Maersk be able to convince the shippers and forwarders, and more importantly, what about the other major ocean freight carriers like Evergreen Line and CMA CGM?
Evergreen is teaming up with Bolero on its own bill of lading product, but unlike CargoX, their bills of lading won’t be blockchain encrypted. Evergreen says that digital bills of lading will lower shippers’ costs while making data transfer more accurate, efficient, reliable and secure. “This is helpful in all cases but particularly for short-sea shipments when a paper Bill of Lading can sometimes arrive later than the vessel, making it difficult for importers to pick up cargo on a timely basis,” Evergreen Line said.
While non-blockchain encryption probably meets any security protocols, that’s not the issue, says CargoX’s chief technology officer, Janez Kranjc. “It’s blockchain’s immutability and trust that is the biggest advantage. There is no centralized system that can get hacked or shut down, whereas a centralized system still requires trust in the centralized system that manages documents.”
CargoX’s Kukman pointed out that in all cases, major ocean freight carriers will struggle to convince shippers and forwarders that their platforms are neutral enough. Kukman said that such branded platforms will face similar hurdles working with customs agencies of countries like Brazil and China.
“They will find it hard to convince customs regimes in countries such as Brazil, Russia, and China to sign up for a private ‘blockchain’ project in the near future,” Kukman explained. “Moreover, Maersk’s competitors are unlikely to join a platform they can’t control.”
What is important is that shippers’ data is secure, which is why companies like CargoX and Blockshipping expect demand for neutral solutions. Users want ownership, and they aren’t sure that they will get that from major carriers. CargoX says that it’s platform guarantees that sensitive trade data is encrypted and only visible to parties that have the right keys – that means even CargoX can’t see data that its customers want held private. The appeal of neutral platforms is that they add another layer of credibility, because there’s no vested interest other than ensuring that everyone’s data is secure.
Above: An introduction to blockchain technology
What’s the hold up?
From logistics media outlets to mainstream news sources, coverage of the logistics potential of blockchain has been growing. At this point, startups like CargoX and their larger competitors such as IBM have convinced logistics companies that their services are more secure and efficient than anything else on the market, but for the most part, projects these days are still experimental, and we’re still waiting for the courier to show up with our bills of lading.
According to a recent PwC study, only 28 percent of the transportation industry can claim a high rate of digitization. What’s holding the industry back?
Fear of the unknown?
Many logistics companies lack a solid understanding of blockchain technology, and they need this knowledge before they can decide how the technology might benefit them. “Part of the problem is that blockchain as a concept is still evolving, and as such, is a moving target,” Ken Cottrill, Global Communications Consultant at the MIT Center for Transportation & Logistics told Shipping and Freight Resource. The college has embraced blockchain technology, saying that companies need more specific information on implementation and running costs, on performance, and how the technology will increase the efficiency of logistics networks.
“Blockchain is still a new technology, and the biggest challenge faced by solutions that incorporate it is educating stakeholders about how it really works and how it differs from traditional solutions,” IBM’s Lieber explained.
Essa Al-Saleh, CEO of Agility Global Integrated Logistics sees a certain responsibility to educate logistics companies about the technologies potential. “We can help customers understand how to use blockchain to improve shipment visibility, eliminate paperwork, reduce errors, and shorten transit and clearance times.”
With all that in mind, it’s not so much a question of whether the industry is “ready” but a matter of how soon they will be pushed towards adoption. “Plenty of companies weren’t ready for the internet, but once its advantages reached the market, it was a matter of going online or going out of business,” Kukman told Shipping and Freight Resource. “Blockchain will have a similar impact on logistics. Platforms like CargoX will allow logistics companies to offer their customers savings and an improved user experience (among other benefits). Importers/exporters are going to start asking their logistics providers for Smart B/L due to associated cost savings. When that happens, we will be there to meet that demand.”
The future of freight
It’s too soon to say what the post-blockchain revolution logistics sector will look like, but we can certainly make some inferences and educated guesses. But first, let’s start with what it won’t change. We’ll still rely on the same modes of transportation, companies will still depend on talented employees who understand their jobs, and for the time being, there won’t be jetpacks!
“I don’t think blockchain itself will transform logistics in five years,” said MIT’s Cottrill. “Blockchain-derived solutions will be delivering some significant gains, and companies will have taken strides to integrate blockchain with other technologies as they migrate towards digital supply chains.”
Cottrill’s expectations mirror what most experts would say at this point. There are still too many unknowns. There are however four areas of logistics that we can expect to change, dramatically, and sooner than you might think!
- Enhanced Transparency. Keeping track of a product’s journey through the supply chain will confirm its origin and touchpoints, which increases trust and eliminates the bias found in today’s supply chains. On a practical level, maritime freight has been plagued by theft since before the pirates sailed the high seas. Nowadays, much of this theft happens at ports, but blockchain immediately pinpoints where and when the theft occurred, allowing companies to close security loopholes.
- Greater Scalability. In the years ahead, we can expect more and more companies of all sizes joining platforms, and even alliances. Blockchain allows unlimited participants to access from any number of touchpoints. That puts companies like CargoX on an equal footing as major competitors like IBM. With blockchain, it’s all about the technology, and as long as shippers and forwarders are willing to put their trust it blockchain, they can sign up in minutes.
- Better Security. We mentioned cargo theft, but it’s also about making sure that your partners are employing the same standards that you are. Blockchain’s shared, indelible ledger with codified rules means less time auditing audits by internal systems and processes.
- Increased Innovation. We should have moved this one to the front, since that’s where this whole idea began, but it’s something we can expect to see more of in the years ahead. Ocean freight companies and the technology companies that empower them will create new, specialized uses for the blockchain that leverage its decentralized architecture to tackle problems that aren’t yet on our radar.
Circling back around to maritime shipping, one last time, these four trends posted above are already working their magic on the industry. Every day, ongoing projects expand, and more competitors enter the market. While that might worry individual companies, it’s great news for the industry as a whole. That’s because blockchain does more than create efficiency – just as importantly, it establishes customer trust and loyalty, which is the ultimate goal for any company.