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With the enthusiastic and inevitable march of so called “FinTech” we are increasingly exposed to new ‘concept terms’ which are predicted to permanently settle into our daily vocabulary. They are often hailed as the latest ‘thing’, a breakthrough, which is prophesied by the digital evangelist to adorn the frontline banners of the impending tech revolution. The revolution that will disrupt the old settled ways and propel some business into the future and potentially sink others! By now we’ve all probably heard about Artificial Intelligence, Big Data or Internet of Things etc. – the signs of the disruptive change brewing. The following series of posts will attempt to shine some light on what these fancy buzzwords stand for, and how such trends are shaping the future of the shipping industry – starting with… Blockchain.
Well, as it happens, a ‘big ticket’ deployment of this technology is already taking place with a major container line deciding to utilise it in a courageous bid to make huge savings. It is estimated that carriers could save about $38 billion a year by using this technology. The average saving is estimated to be about 15-20% per one container shipment.
Blockchain is often described as a distributed ledger technology, but what does it mean? Think of it as a bank transaction. Presently, whenever we transfer money we rely on a middleman (the bank), to process the transaction. Now imagine that the bank is instructed to execute a complicated, time sensitive international transaction, where various strands of payments are triggered by numerous events outside the bank’s direct involvement or control. Inevitably, the bank’s role in this scenario would be to centralise operations and guard the transaction’s regime and integrity. This unavoidably involves costs and time, a substantial proportion of which would be spent on security of the process and on tracking the triggers governing the lifecycle of the transaction. This makes the bank an enabler and a focal point for the entire undertaking. As a result, it becomes a big visible target for those who plot to gain from breaching the security of the transaction.
Now, Blockchain address the downsides of this scenario. It allows the participants of this equation to do away with the bank, the middle man facilitator which very often is the bottleneck itself. The need for the third party ‘governor’ is removed by enabling participants/transaction stakeholders to connect directly and build-in automatic dependencies which are routinely governed/executed when the relevant parties in the chain meet the set requirements.
Cryptography, inherent to the exchanges between the parties, creates a decentralised replicated and time stamped database, the so called ‘digital ledger’, of transactions that everyone in the network can see. Effectively, it is a chain of computers/users all of which must approve an exchange before any transaction can be recorded as valid. It is the transparency and democratisation of the transaction that makes it safe. This contrasts with the secrecy/oligarchy of the middleman controlling the entire process from within its walls making it an obvious target. In Blockchain there is no visible big target due to its decentralised nature. The huge appeal of Blockchain for any industry is that it can work for almost any transaction that carries value. Moving away from banking, it is capable of handling complicated non-financial transaction between numerous stakeholders. For example, it could be applied to transfers of property or goods, creating smart contracts or even for collecting tax. It will also work for shipping transactions, particularly in case of containerised goods and the supply chain.
It should really come as no surprise that big container lines forsee tangible benefits in utilising Blockchain. Amazingly, it is estimated that shipping one container from East Africa to Europe, on average, requires stamps and approvals from around 30 people adding up to over 200 interactions between relevant parties, most of which require some paperwork. This paperwork and interactions can (and very often are) a bottleneck and fertile ground for fraud. Blockchain will remove the paperwork, including errors/fraud associated with it. At the same it is bound to reduce the time necessary to complete shipping transactions/process and improve customer experience.
No longer will one party be burdened with driving and securing the process. Blockchain can give all involved parties unprecedented transparency allowing everyone to track the shipment’s journey across the globe. The use of digital infrastructure for real-time exchange of supply chain documents and transactions is the future.
What’s next for Blockchain in shipping? How about applying it to E-Bills of Lading?! Let’s try to explore this possibility in one of the next post in this series.