Case study: Blockchain in the shipping industry

Case Study

Using blockchain to reduce obstacles in global shipping
“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, charterparty 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... The initial push into the industry has seen large operators collaborating with technology companies to gauge how blockchain technology can help them in the future… The expectation is that blockchain technology will create a platform not anchored down by endless paperwork and complex transactions but instead fully digitalised thus enabling more fluid freight movement and reduced costs and resource waste.” – Watson, Farley & Williams briefing, Blockchain and Shipping (March 2018)

The challenge
One of the big IT challenges facing the shipping industry today is non-integrated systems that result in “lack of accuracy and completeness of information”, according to PwC’s latest Annual Shipping Industry Finance Update.

And the shipping trade platform company INTTRA says data silos and incompatibility are major supply chain challenges for the sector: “The inability to share data and interoperate across the supply chain is the root cause of many issues that still plague the industry. Existing silos make it too hard to share data and to create collaborative processes. Issues like lack of container visibility, the difficulty securing container space, poor delivery time predictability and even booking no-shows are symptoms of the core problem – information does not flow freely between trading partners.”

“While the widespread use of blockchain is not seen as imminent, there is great potential for distributed ledger technology to change the way companies operate and conduct trade,” the global law firm Reed Smith noted in a recent shipping industry survey. “Distributed ledger technology could potentially eliminate paperwork entirely owing to a centralised system that holds information on the movement and storage of cargo.”

The project
In August 2018, IBM and the shipping company Maersk launched TradeLens, a blockchain-based platform designed to address several key inefficiencies in shipping industry processes. TradeLens uses smart contracts to let multiple trade parties share information and track every event in the shipping supply chain.

Before launch, the companies tested the platform during a 12-month trial aimed at identifying “opportunities to prevent delays caused by documentation errors, information delays, and other impediments”.

The TradeLens platform is made up of three layers: a network of partners that provide data, a blockchain-based platform for tracking events and sharing documents, and a set of applications and services that include open APIs (application programming interfaces) and the IBM Cloud.

Early adopters of TradeLens included not just Maersk but the shipping companies Pacific International Lines and Hamburg Süd, as well as freight forwarders, beneficial cargo owners, customs brokers, 20-plus port and terminal operators and customs authorities in Australia, the Netherlands, Peru, Saudi Arabia and Singapore.

The results
At the launch, Maersk said TradeLens had already captured more than 154 million shipping events, “including data such as arrival times of vessels and container ‘gate-in’, and documents such as customs releases, commercial invoices and bills of lading”.

“This data is growing at a rate of close to one million events per day,” Maersk said in a press announcement. “Traditionally, some of this data can be shared through the EDI [electronic data interchange] systems commonly used in the supply chain industry but these systems are inflexible, complex, and can’t share data in real time. Too often, companies must still share documents via email attachment, fax and courier. TradeLens can track critical data about every shipment in a supply chain, and offers an immutable record among all parties involved.”

TradeLens became generally available to users in December 2018.

Key benefits
TradeLens offers the potential for users to lower costs, increase the amount of on-time cargo, reduce risk and expand market opportunities, says Michael White, head of TradeLens for Maersk GTD.

“TradeLens is a blockchain enabled tool that helps all partners in your supply chain gain vital access to critical end-to-end supply chain information and data quickly, securely, accurately and seamlessly,” White wrote last year in a blog post.

One example cited by Maersk demonstrated how TradeLens can reduce the transit time of a shipment of packaging materials to a production line in the United States by 40 per cent, avoiding thousands of dollars in cost. The company added, “Through better visibility and more efficient means of communicating, some supply chain participants estimate they could reduce the steps taken to answer basic operational questions such as “where is my container?” from 10 steps and five people to, with TradeLens, one step and one person.”

Final thoughts
Despite TradeLens’ potential and early reports of success, the platform has also raised questions among critics. One of their main objections is Maersk’s direct involvement in TradeLens.

“Maersk and IBM created the joint venture that owns TradeLens (including the platform’s intellectual property), and there’s the rub: Because Maersk is an owner of the joint venture, it will enjoy a benefit not shared by the other participants on the blockchain platform,” Andrea Tinianow wrote in Forbes in October. “That is, Maersk will be enriched from the growth of the actual TradeLens platform, while the other participants on the network will not.”

That issue explains why a group of nine carriers and terminal operators in November announced their own plans for a consortium-led blockchain solution for the shipping industry.

Other critics note that the industry problems that TradeLens – or any other blockchain system – promises to solve aren’t necessarily as serious as they’re made out to be.

“One of the perceived benefits of blockchain technology is that it would cut a lot of paperwork within the industry,” logistics writer Hariesh Manaadiar points out. “But within the markets that have digital capabilities, a lot of paperwork like stamping of delivery orders for delivery of cargoes or filing of customs documentation with Customs has already been cut for a good few years.”

Manaadiar adds: “So, other than in financial transactions, where can blockchain be of assistance to the shipping industry? At the moment, mainly in the preparation and safe transmission of documents such as documentary credits including letter of credit, commercial invoices, packing lists, and bills of lading.”

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