News & Analysis

The chains that bind

Loadstar Publisher Alex Lennane on how blockchain will transform the supply chain

‘It’s inevitable. It’s not a matter of if, but when blockchain will impact your business.’ So says Deep Ghumman, principal at EY Advisory.

Much has been written about blockchain in the past year. It has its fair share of naysayers – some fear new technology, others fear the transparency it brings. But one thing is certain – it is here, and it will trigger big changes in how businesses operate.

Shippers are leading the charge. They are keen to introduce greater accuracy and visibility throughout their supply chains. Blockchain, originally designed to facilitate cryptocurrency payments, is particularly well suited to the supply chain via its ledger of transactions, revealing the chain of custody.

As Paul Brody, EY Global Innovation Blockchain Leader said at the Blockchain in Transport Alliance (BiTA) event in Atlanta last month: ‘At its most basic level, the core logic of blockchains means that no piece of inventory can exist in the same place twice.’

That means there is no room for argument or contract disputes, no lost inventory and a significant reduction in man-hours. He added: ‘Through blockchain, companies gain a real-time digital ledger of transactions and movements for all participants in their supply chain network.

‘But don’t let the simplicity of the tool overshadow how transformational it is,’ he added. ‘It’s important to clarify that the blockchain isn’t merely a prerequisite piece of software to buy. It’s actually the opposite – a solution to your current fragmented infrastructure.’

Blockchain’s ledger of transactions cannot be changed. Altering the ledger after the fact is akin to ‘turning a chicken nugget back into a chicken’, according to blockchain expert Don Tapscott.

‘That’s a fairly close analogy,’ agrees Timothy Leonard, chief technology officer for TMW, a transportation management software company. ‘The data is locked in, it cannot be re-interpreted.’

Practical applications

Leonard started looking at the ‘niche problem’ of supply chain contracts, having realised that 90 per cent of transactions and processes were done by email, phone or fax. But in the process he discovered ‘how inefficient transport is in the supply chain, and this is down to the lack of visibility.’

Blockchain, he says, brings traceability to products and shipments, especially in perishable supply chains. He examined the supply chain of strawberries as a case study. The farmers already have information – where each crop is grown, when they were picked, the variety, pesticides used and so on. There are 21 different varieties grown in two US states he looked at; each has a different maturing point and preferred temperature.

‘With certain varieties you can tell when they reach their peak, and what temperature they need to be transported at. This can all be on the ledger. How many truckers would spend the time to find that out otherwise?’ he asks.

Smart and instant contract fulfilments are also key applications of the technology, which can help speed up business on the supply chain. ‘You can verify something like carrier insurance in 15 to 20 minutes – previously this was a 30-day manual process,’ says Leonard.

Brussels Airport and its cargo community is using blockchain to track the handover of cargo from handlers to forwarders. ‘The handover of cargo is an important phase, as it also confers the legal transfer and liability for the cargo,’ says Steven Polmans, Head of Brussels Airport Cargo. ‘Today, it’s a very time-consuming and manual process, involving paperwork and different steps. So this is a good example of where blockchain can offer a solution.’

Panalpina’s head of digital innovation Luca Graf says he has three core interests for how blockchain can be used. ‘The first is smart contracts, and things like the air waybill and bill of lading,’ he says. ‘Then there is quality control, to make sure supply chains [of products] such as pharmaceuticals to ensure temperature control is maintained, so that shipments are safely stored and kept cool.’

The third is using blockchain to ensure that the goods which are shipped are the goods that arrive, and aren’t substituted for lower quality or even counterfeit goods along the way. ‘Proving provenance and the chain of custody for things like perishables, [and components for] automotive and aerospace,’ he says. ‘You can prove that a party has delivered original spare parts, for example.’

In the maritime sector, Maersk and IBM have partnered to create a ‘global trade digitisation platform built on open standards, and designed for use by the entire global shipping ecosystem’.

Open source, not secret sauce

Open standards are a pivotal element of blockchain – a transparent supply chain isn’t possible for people with shared interests trying to work across incompatible and proprietary systems. According to EY’s Brody: ‘Blockchains will go from private to public – private blockchains don’t really scale’.

He points to email as the ultimate in public systems, saying a similar process will eventually emerge: ‘It’s an open system, with ecosystems that have emerged to address issues such as spam, storage, mobile delivery,’ he says.

TMV’s Leonard says blockchain’s real value is in solving problems shared between a number of market participants – as is the case with the shipper, forwarder, operator and purchaser within a supply chain. ‘Open source helps a community solve its problems. A community can look at the problem and pull together. If done correctly, open source offers a wider variety of collaboration and diversity. Proprietary software is to make money.’

Leonard is one of the founders of BiTA, whose aim is to create industry standards through collaboration and an ‘ecosystem’ of companies that work together. ‘A few years ago, I would never have thought that such collaboration between companies would be possible,’ he says.

The transparency is nothing to fear, he explained. Blockchain allows for both private visibility between two parties, or industry visibility on a shared public domain. ‘Companies can keep their secret sauce, but can share other information, he says.

One of the biggest challenges, especially with the large amount of hype surrounding it, is the lack of comprehension of blockchain. ‘How it works is still a mystery to about 99 per cent of people,’ says Leonard, but adds that companies should ‘grasp the business capability’.

Ken Craig, Vice-President special projects for McLeod Software, agreed that setting objectives is critical when it comes to blockchain. ‘It should not be technology-driven, but business-driven,’ he says.

The technology also requires agility – to work on the fly and improve rather than wait, develop, perfect and implement.

Speaking at the BiTA event, Dale Chrystie Vice-President Strategic Planning and Support for FedEx Freight added: ‘Early work cases are important. You can’t miss out on the early steps – we are in the starting phase, at step number three in 100. We need to keep learning, fail fast and move forward.’

But few can afford to be left behind.