Despite seemingly constant technological advancements impacting just about every industry imaginable, the shipping industry still relies heavily on traditional processes. In the modern world, many of these processes are downright archaic and fail to sufficiently meet the needs of the companies involved in the supply chain. Most shipping transactions numerous documents, including charter party agreements, sales contracts, bills of lading, letters of credit, port documents, etc. They pass through several hands as cargo makes its way from its point of origin to its final destination, and keeping track of all that paperwork can be quite difficult. The procedure is extremely time-consuming, and vessels commonly arrive at discharge ports prior to the arrival of certain important documents.
In an effort to simplify the current inefficient procedures, the shipping industry has taken some inspiration from a surprising source: bitcoin. Bitcoin was the first digital currency and payment system that revolutionized the financial market. A technology known as “Blockchain” is a fundamental component of how the bitcoin payment system works, and it has the potential to revolutionize the shipping industry.
What is Blockchain?
Blockchain is a digital ledger used to record transactions. Old transactions cannot be modified. The technology was designed for cryptocurrency, but it has countless potential uses, including in the shipping industry.
Blockchain technology is based on an open-source, peer-to-peer software program that is completely decentralized. The issuance of new currencies and the management of all transactions takes place collectively throughout the network. Bitcoin or a similar program uses a chain of cryptographically secured blocks to record transactions in a public ledger. The resulting ledger is what is known as the blockchain.
Each of the blocks in a block chain contains a link to the previous block and a timestamp. Prior to being processed, several confirmations must be made in the network. This ensures that every recorded transaction abides by all network rules. Once the information has been stored in a block, it cannot be modified or deleted unless the majority of the network accepts the revision or deletion request. This makes it nearly impossible for hackers to interfere. It also prevents would-be criminals who are working within the supply chain from altering sensitive information.
How Does Blockchain Work?
Imagine a large network of computers that all share the same file. The network is designed to update the file on a regular basis. Adding a transaction on one machine will automatically add it to the file on the other computers. The network also verifies all the copies of these files against each other to ensure each is correct. There is no centralized file that can be hacked and changed. If one of the files is modified the verification process will catch and fix the error unless the change is approved by the majority of the network.
While originally used to enable safe financial transactions between various parties without the need for an intermediary like a bank, blockchain acts as a decentralized, secured, and encrypted ledge that has potential for use in numerous industries. In the shipping industry, the use of blockchain could eliminate the seemingly endless paperwork and result in greater efficiency and more streamlined processes.
Here are just a few of the many ways blockchain could revolutionize the shipping industry.
One of the most promising aspect of blockchain for the shipping industry is its potential ability to make paperwork a thing of the past. Going paperless would improve efficiency while making it easier for everyone involved in the transaction to access the necessary information. Buyers and sellers of cargo, charterers, banks, ship owners, port authorities, customs agents, and other parties with access to private and public keys could interact with each other, store and exchange information, complete transactions, securely exchange payments and more without need to worry about keeping track of stacks of paperwork.
In addition to its use as a public ledger, blockchain could also bring “smart contracts” to the shipping industry. Smart contracts are a type of contract that exists in the form of a computer program. The program runs and is self-executed in blockchain and automatically implements the terms and conditions of any existing agreement between the involved parties.
Charter-party and bill of lading terms and conditions are a standard part of the program, and they cannot be modified by the parties involved in the contract. This allows the charterer or the owner to negotiate the price or the cargo directly within the blockchain network.
Prior to the use of blockchain, this type of smart contract was not possible because the parties in the agreement would have needed to maintain separate databases. A shared database that runs blockchain protocols causes smart contracts to execute automatically, and all involved parties validate the document instantly.
Faster Processing Times and Real-Time Updates
Mailing paperwork from one place to another takes time. Exchanging important information using blockchain, however, is instantaneous. Procedures that currently take weeks to complete by mail can be completed in a matter of just a few minutes. Blockchain’s software code also allows for the automation of tasks that are typically handled manually. This automation helps provide real-time updates to the parties who have access to the ledger.
When using blockchain, all information is stored in a location that may be viewed by anyone with the necessary access key. This ensures full transparency to all participants. It also makes it easier to perform counter-party risk evaluations since everyone has access to all of the transactions previously performed by every party.
This improved transparency also improves visibility. Blockchain provides an effective means for connecting customers, carriers, orders, and payments in real-time. This makes it much easier for everyone from the supplier to the end consumer to track where their shipment is and when it should arrive. The transparency of the blockchain software eliminates the need to rely on phone calls, emails, etc. for status updates.
Despite your best efforts, documents transported by mail are prone to security breaches. It is easy for them to fall into the wrong hands, and in certain situations, this can be extremely dangerous. With blockchain, all of the information is encrypted, which adds a strong layer of security. In addition, the system prevents users from interfering with it or changing the information stored in blockchains. This protects the market from document manipulations and fraudulent activity.
The use of blockchain also has the potential to prevent fraud. With blockchain, the possession of a shipment or package – be it a shipping drum or corrugated box— is tracked at each step. When coupled with auto-identification verification technology, blockchain can help eliminate any questions regarding the chain of custody.
Much of the expense associated with the shipping industry is related to documentation. In addition to the cost of sending paperwork from one location to the next, there is always the risk of loss or damaged paperwork. There can also be errors or discrepancies that cost shipping partners money or result in procedural delays. Blockchain eliminates the need for physical documentation and can drastically reduce this particular expense for businesses in the shipping industry. Experts estimate that the cost savings could be visible on companies’ financial statements within as little as two years after implementing blockchain technology for their processes.
Because blockchain technology provides information that allows shippers, customers, etc. to track the location of shipments, it may also help save money by preventing loss, theft, and damage to products while in transit.
Streamlined Data Exchange
As cargo makes it way through the supply chain from its point of origin to its ultimate destination, it leaves behind a trail of hard copy and electronic documents. Each document serves its own financial, legal, or regulatory purpose, but the way it is currently shared is not efficient. Blockchain technology allows all of this data to be transmitted in a regulated and secure manner. It will be available from the blockchain in the context that each trading partner requires, thus eliminating filing, conflicting integration standards, and other issues.
Improved Cargo Carrier Compliance
The shipping and cargo industry was once highly regulated and developed strict standards for EDI, rating, and documentation. Now the industry is more well known for its lack of standards. This makes it difficult for new carriers and shipping companies to break into the market because it requires proprietary integration with various systems to automate ratings, tracking, and manifesting.
E-commerce is now driving the demand for faster new delivery methods, including same-day couriers. The market is more than ready for big changes in the shipping industry, and blockchain could provide the new technology standard needed to reduce complexity while improving compliance and the integrity of shipping transactions.
Improved Delivery Quality
Once in a while, shipments are damaged or lost while in transit. When this happens, it can have a major impact on how customers perceive the shipping company. Blockchain has the potential to provide better asset management for customers by allowing them to see exactly where their cargo is at all times.
Shipping customers may review company transactions and blockchain information to view the certificate of origin from the manufacturer to ensure that quality materials were used in the production of the products. They can also review documentation from the distributor to see events in the logistics chain. Blockchain information can also be used to determine where the supply chain process failed in the event of a problem.
This digital technology allows customers to hold shipping companies liable for damaged or missing products. It also makes it easier for customers to make more informed decisions regarding their supply chains to ensure improved delivery quality and maximum efficiency.
Blockchain Technology Will Revolutionize the Shipping Industry
While the technology is new and widespread implementation has not occurred in the shipping industry year, blockchain has the potential to completely revolutionize the shipping industry. It has the power to eliminate paperwork to improve efficiency and cut costs. It also improves transparency and makes it easier for all parties involved in the supply chain to communicate and view important information.
The current systems used by the shipping industry are largely antiquated and are not sufficient for the needs of today’s global economy. Blockchain software, however, could breathe new life into the system and make it much easier for businesses involved in all aspects of the supply chain.