Impact of Blockchain technology in Logistics industry

The Logistics Industry is a key segment in several world economies, including that of the United States.

Using a study from AT Kearney, it accounted for about 7.5% of GDP in 2016.  The Logistics industry is made up of several subsegments including:

  • Motor Carriers e.g. JB Hunt, Old Dominion
  • Parcel Delivery e.g. Fed Ex, UPS
  • Rail e.g. CSX, Norfolk Southern
  • Container Shipping e.g. Maersk, Hapag-Lloyd
  • Air Freight e.g. DHL, Martinair
  • Pipeline companies e.g. Enbridge, Kinder Morgan
  • Freight Forwarders e.g. Kuehne+Nagel, Sinotrans
  • Third Party Logistics e.g. CH Robinson, XPO Logistics
  • Warehousing Companies e.g. Ryder, Geodis

Many of the players in the above list bleed over into the other segments and offer a broad product mix.

Technology has continued to be the catalyst for change in the Logistics industry.  New business models are being constantly developed and driving the industry towards a flexible, connected, optimized supply chain.  Customer expectations also continue to evolve with a greater need for immediacy, convenience and personalization at the core.  AI, IoT, and Blockchain technologies have a major role to play in this evolution.

Logistics, in general, involves a Chain of Custody where goods change hands between multiple parties.  For instance, a Seller in China wishes to ship goods to a Buyer in the US.  It is very likely that in this scenario the goods e.g. a Container will go through several intermediaries e.g. trucking companies, shipping companies before reaching the buyer.

Source: NetObjex Inc

At present, most of this journey is fairly opaque in that once the goods leave the custody of the Sender, there is very little insight as to its status until it arrives at the Buyer.  When single companies handle the entire shipment e.g. FedEx, DHL etc then there is slightly more visibility through mobile notifications and web based tracking via tracking numbers.   But when multiple carriers are involved, tracing and tracking becomes exponentially more difficult and is not being handled most effectively at present.

Enter Blockchain to the rescue.  The blockchain is a form of Distributed Ledger technology may be just what the doctor ordered when it comes to improving the transparency in the Logistics industry.  Blockchain technology provides a transparent, tamper proof, and immutable ledger – three properties which could help mitigate several of the inefficiencies in Logistics.

Before we examine Blockchain in detail, let us quickly list some of the common issues faced in Logistics:

  • Inefficiency e.g. goods not arriving on time
  • Loss e.g. goods perishing enroute due to improper handling
  • Theft e.g. goods being stolen due to lack of security measures
  • Counterfeiting e.g. goods being replaced with counterfeit goods
  • Fraud e.g. document fraud where documents such as bill of lading are modified

With this context in mind, let us study how Blockchain can help in Logistics.  First, blockchain technology is extremely useful in ecosystems involving multiple players who work with one another but there may be trust issues.  The Logistics ecosystem easily qualifies in this regard.   Second, most of what ails the ecosystem is a lack of accountability which is brought about by the lack of transparency.  For instance, in the chain of custody, if all the ecosystem participants have their own information silos (either automated or otherwise), then there is a lack of a common set of truths or a common system of record.  This leads to inefficiency, errors, and even fraud. Third, compound this already maligned ecosystem by saddling it customer requirements such as cold chain shipments where temperature has to be maintained within specific thresholds e.g. pharmaceuticals or wine.

In all three cases, Blockchain is a perfect fit.  First, it helps all ecosystem participants’ work off of the same data by sharing data across trust boundaries breaking down the silos on information. Second, when coupled with IoT technology for real-time data acquisition, blockchain can be used for governance and accountability in Chain of Custody situations.  For instance, in a cold chain shipment, one can easily ascertain which party was responsible for a shipping container while in transit when the temperature gauge reading went outside of the preset thresholds.

Blockchain promises to be a game-changing technology and something that is a very good fit for the Logistics business and all of its complexity.

About the Author:

Raghu Bala CEO, NetObjex Inc is based in Southern California. Raghu formerly worked with Yahoo, Infospace, PwC, and with 3 successful startup exits.  He is a Wharton MBA in Finance, MS in Computer Science from RPI, Ex-Columbia University Adjunct Lecturer, published author and major conferences including IoT Congress, Google IO, and more. His Current focus areas are Decentralized computing, Distributed ledgers, IoT, and Crypto-currencies respectively.

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