The digital handover
Common links: Blockchain is already the core component of cyber currency bitcoin. Credit: BTC Keychain
Could blockchain technology turn accepted supply chain practice on its head? Felicity Landon reports
The ports industry is looking for greater transparency, a faster flow of data, faster flow of cargo, streamlined operations and more efficiency. It needs all parties to share and entrust each other with more information. Those involved want to be confident that documents and certificates are legitimate and haven’t been tampered with.
Consumers want to know that the clothes they buy are genuine and not made by child labour. They want to know if they are eating beef or horse. They might even like to know where and when the fish was caught that is now in the fish pie in the supermarket freezer.
Enter the blockchain. Already established as the core component of the digital currency Bitcoin, the blockchain is capturing imaginations across industries. And it’s coming to catch you soon.
What could be the impact? Best described as a virtual ledger, blockchains have massive potential, according to one port IT specialist. “Everyone in the supply chain should be watching this carefully. The Internet of Things is a massive disruptive technology, but blockchains go beyond that. The move from the Internet to blockchain is like looking at the move from Telex to the Internet.”
In another 20 years, he believes, we will be asking: “How on earth did we do it in the old days?”
Sara Falaknaz, recently appointed chief innovation officer at DP World, says: “Blockchain should be more correctly compared to the start of personal computers. It seems useful but has no widespread application. Blockchain is the modern version of the old PC.”
Bear in mind, she says, that blockchain is encrypted and secure – it has a secure identity and a secure way of holding information. Also, with its roots in digital currency like Bitcoin, it was originally adopted to be used as an electronic wallet with a journal. Its genesis was in the financial sector.
“Personally, I see a lot of potential in the concept but I am also wary of the challenges it poses,” says Ms Falaknaz. “Its technology and use needs to be fully understood and absorbed by the masses and companies for it to truly arrive. Another challenge is that a lot of computing resources are required to produce the encryptions. In a large deployment, can technology advance enough to take on these loads?”
Widespread concept adoption is the key to the success of blockchain technology, she says. As for its use in the logistics industry, it could possibly be used to ‘combine’ the various documentation processes, or to provide secured ID services to the various stakeholders in the supply chain, and even to ‘pay’ for each stage of services incurred.
“Its innovative implementation could remarkably improve the documentation process and change payment methods in the logistics industry, making the entire process ‘smarter’.”
Trust and privacy
Blockchain is a distributed platform that introduces transparency, immutability and trust, along with privacy for recording the history of transactions using a shared, irrefutable ledger – all these are desirable qualities for a company looking to keep its customers happy or a government serving its people, says Ms Falaknaz.
The versatility of the concept means it can be applied to the ports, logistics, shipping and supply chain worlds – particularly valuable as they entail multiple stakeholders, varied geographies and different time frames to complete, she points out.
“We see blockchain as an important component and a game-changer in simplifying the global supply chain and hence our business.”
DP World is beta testing blockchains in Dubai Trade and is also conducting a trial with Dubai Customs. “Banks, shipping lines, freight forwarders and other logistics industry stakeholders are conducting various trials; most of these trials are limited to select parts of the supply chain and we look forward to deriving its tangible value when they can all subscribe to one standard. And this is one of its biggest challenges – to get all these parties to adopt one blockchain standard.”
Maurice Jansen, senior innovation, research and development manager in shipping and transport at the STC Group in Rotterdam, and a visiting researcher at Erasmus University, says: “Blockchain is a revolutionary new way to make transactions transparent, yet sharing digital tags that travel along with the goods in its journey from raw materials to finished product, without having to open up accounting systems.”
As an example, he points to Australian company Provenance, which has put a proposition in place based on full traceability of the custody trail, to give end consumers, as well as governments and NGOs, complete information on where products come from and who has been involved along the way. “Until recently, only retailers were able to give consumers this kind of information but scandals in, among others, the textiles chain and dairy chain disclosed how weak and transparent this system is,” he says.
Provenance suggests a blockchain ‘from catch to can’. This starts with registration of the fisherman and moves through: fish caught, issued by fisherman via mobile; fisherman transfers item to supplier; supplier receives item, checks its history into blockchain; unique ID in the system takes the form of an address; process contracts are given to the item while it is converted from whole fish into piece meals, checked against exact amounts of ingredients used; scanning labels attached to finished item, triggering transfer to next actor in the chain; finally, the shopper can scan the smart sticker to retrieve the full trail back to the original fisherman, “filling the gap that modern long distance supply chains have created”.
Role for ports
Blockchain was initially approached with a lot of scepticism, as its use was associated with Bitcoin – but now it is perceived as the ‘holy grail’, says Mr Jansen. “Blockchain is jumping over the physical world of supply chains, without having to have a trusted third party or supervisory body.”
The role for ports, he says, is to set standard protocols that make this technology fit for thousands of supply chains that pass through, securing ways to have public rather than private blockchains.
“For years, we have been talking to each other and saying we need to share more data for collaborative planning or to reduce waste or waiting – for example, for documents to arrive.”
A prime example would be the bill of lading, he says. “Instead of waiting for the BoL, as terms change or there is a different destination – when there would usually be a hassle, holding back shipment, this kind of blockchain technology could pick up on this. Anyone could update information on the BoL, which is of course impossible at the moment.”
The great ‘positive’ being promoted about blockchain is that once information has been recorded, you can’t go backwards and change it, giving real transparency for all parties involved.
However, there are still security concerns, says Virginia Cram-Martos, economic cooperation and trade division director at the UN Economic Commission for Europe (UNECE).
“You can’t change a blockchain transaction without that being detected; but at the same time, if someone hacks the application that creates the transaction, masquerading as a valid user, and that gets into the blockchain, there is no way to get rid of it. Most of the applications so far have no way to correct mistakes, so it would just sit there. There are also some issues about software – some of it isn’t mature enough, so it is possible to hack software to create transactions that people will think are verified when they are not.”
Ms Cram-Martos believes blockchain’s most immediate use could be in the area of certificates and licences, and their validation. “For example, a phytosanitary certificate, which is only of use to the particular shipper; falsifying the documents would only create benefits for that one person or entity. I think this area has a greater possibility of being put earlier into a blockchain because there is less of an incentive to hack. Most companies are not going to hire a highly skilled hacker to change a phytosanitary certificate – they don’t have the time or the money.
“This could also solve problems in cross-border trade in terms of official documents and varying legislation about electronic signatures. There are a number of transactions where it is very important to have confidence in the document itself – testing certificates, for example. With blockchain time stamping, if a certificate received by the import country matches the copy issued by the authorities in the export country, the importer can be assured that no changes have been made.
“Blockchain is not useful for co-ordinating or generating information – it is useful for ensuring the validity of information. In certification and licensing, it could eliminate a great deal of fraud.”