In many ways, the shipping industry remains rather traditional, with a number of the processes involved being time-consuming and document-intensive and the use of paper documents still prevalent to name a few, memoranda of agreements for ship sale and purchases, charter party agreements for ship employment, bills of lading, port documents, letters of credit and other documents for the carriage of cargo. The fact that these arrangements, at times, involve an extensive chain of parties only increases the risk of human error and very occasionally, fraud. Blockchain Technology will take the shipping industry by storm, but the potential cost savings that it’ll bring along is what has everyone so excited.
How will the shipping industry have the benefit of blockchain technology?
The initial push into the industry has seen giant operators collaborating with technology corporations to measure how blockchain technology will facilitate them in the future.
For example, Maersk has teamed up with IBM to set up a company to disseminate blockchain technology throughout the shipping industry by, for example, tracking freight and replacing all paperwork with digital records, in the hope that it will create considerable benefits for all stakeholders along the supply chain.
The expectation is that blockchain technology can produce a platform not anchored down by endless work and complex transactions but instead entirely digitalized therefore allowing additional fluid freight movement and reduced costs and resource waste.
According to Tradewinds, in excess of US$4bn worth of goods are shipped yearly and the costs incurred by the documentation attributed to such goods is in the region of US$800m; it is this substantial cost that the blockchain ecosystem aims to erode. The potential savings will ultimately have to be weighed up against the potential risks in any digitalized system in relation to fraud or hacking.
- Smart Contracts
The principal benefit of smart contracts comes from the increased speed, efficiency, and trust that the contract will be executed exactly as agreed. In addition, such contracts can reduce certain transaction costs associated with contracting, since blockchain technology cuts out middle-men.
In the shipping industry, ING and Société Générale are collaborating to develop a blockchain-based platform for the management of physical energy commodities trading. By moving away from traditional and cumbersome paper contracts and operations, to secure smart contracts and authenticated transfers of electronic documents, the aim is to cut administrative and operational risks for all participants in the supply chain, including ship owners, charterers and shipbrokers.
2. Smart Bills of Lading
The bill of lading evidences the contract of carriage between the carrier and the shipper and that the shipper has received the goods in the prescribed condition. Traditionally, the bill of lading is a paper document and it constitutes a document of title for the goods. Physical possession confers the right to receive the goods.
Blockfreight, a provider of blockchain-powered logistics, offers the supply chain an advanced automated global ledger complemented with digital security and customer authentication and which is populated with chains of custody data bespoke to each individual freight container. This seeks to give stakeholders complete visibility of their shipments from collection all the way through to delivery and reduces overheads drastically.
3. Data repositories or asset registries
One other space within which blockchain technology might be used is within the institution and maintenance of a decentralized asset registry, for example in relation to container boxes. Ultimately, the extent to that blockchain technology is adopted can, in part, depend on the intention for which it is to be used.
Blockchain technology has the potential to act as a “data repository”, whether by individual companies or industry bodies. The Global Shared Container Platform (“GSCP”), a blockchain-based platform, seeks to allow participants in the container shipping industry, whether they be container lines, ports or terminals, to keep real-time track of all containers and to manage various types of container-handling transactions.
Blockchain has the potential to revolutionize business processes in industries from banking and insurance to shipping and healthcare. Still, the technology has not nonetheless seen a major application at scale, and it faces structural challenges, as well as resolving the innovator’s quandary.
Shipping industry needs to leverage new technologies and embrace ways of rethinking old processes in the digital era. While there are still many challenges to overcome, the right foundations for successful industry adoption of blockchain can ultimately unlock new value in logistics.
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