Blockchain and Shipping: Can it work?
We are witnessing great efforts by organizations and corporations in changing their infrastructure and their business model to be able to respond to the demands of this new era. Of course, the industry of shipping could not be left out of this innovation and change that is taking place.
It was not until recently that we heard of blockchain and digital currencies. Many connect blockchain with bitcoin and there are both negative and positive opinions on the matter. To set the record straight, let us shed some light about blockchain. What is indeed blockchain and how does it work?
Blockchain technology is based on a complex branch coming out of mathematics and it is called cryptography. We all know what a ledger is, so let us picture that it has the form of an organized distributive ledger where all transactions in the network are linked in a sequence of blocks. These blocks can be closed or they can be locked. When a new block opens, then new blocks can be added to the chain through digital coded transactions. The blocks are stored and recorded in a sequential manner with fixed, specified numbers.
Cryptography verifies information in permanent blocks of data and this is how it makes it secure because, during the process of verification of transactions, the timing of the transaction is recorded while the system ensures that only the intended recipients can have access to the information. Blockchain is capable of moving digital assets. For example, in cryptocurrency, the asset is a digital coin.
Professionals from all around the world from different industries are looking into the benefits which the application of blockchain can bring in the shipping industry, thus introducing “smart shipping”.
Before analyzing the advantages of the use of blockchain in the shipping industry let us see some facts about the way the shipping industry is working all these years with specific numbers.
If we wish to talk about money, then nobody can doubt that on a daily basis there are hundreds of billions of dollars tied up in disputes for payments in the transportation industry since on average, a company waits 42 days before receiving payment for an invoice after it has been issued.
The processing and administration costs have risen to as high as 20% of transportation’s overall costs, due to over-reliance on paper transactions. Doing trade on paper and handling documents manually, even when sent by email, fax or post, slows down logistics and facilitation of trade.
As for refrigerated shipments, there we see a lot of procedures which not only delay but affect the product itself since these shipments need to go through 30+ different organizations, requiring 200+ separate communications. Anything left out, or that goes wrong in the procedure during these steps could cause a container to be held up with the products destroyed or lost.
Many times, mistakes are made in payments and invoices get lost whereas there is always the fear of personal data or classified data being leaked owing to human factors.
Implementing new blockchain – enabled platforms that will allow easy coordination of documents on a shared distributed ledger, will result in making physical paperwork largely unnecessary.
The shipping industry could be more efficient and faster by using blockchain through smart contracts, approvals and customs clearance, thus reducing processing times for goods at customs checkpoints. At the same time the users’ identities would be protected by crypto-programming and permission-based sharing, because each party has the right to protect sensitive information, such as customer data.
Moreover, the port authority, carriers and freight forwarders can improve their logistics by viewing the whole progress of the shipment since the blockchain-based tracking system is more accurate as it enables all members of the platform to see the ledger at the same time, and have access to secured data in real time.
Each transaction is encrypted using a key which links relevant participants. All records are individually encrypted. All nodes, which are comparable to small servers, contain a copy of this record.
Taking into serious consideration the changes which the pandemic brought into our lives and the rising demand for same-day and one-hour delivery services, we have to admit that traditional tracking technologies will not be efficient anymore.
Blockchain ensures trustworthy data across the transportation and logistics ecosystem, since the entire network contributes to data validation. That is why organizations in the shipping industry, which may see this new option as a solution, will need updated, secure and authentic data to make decisions.
Blockchain technology could prove to be a powerful tool for the shipping industry. Companies which play an important role in regard to the global supply chain do need to recognize the full potential of blockchain. If they set to work together to accelerate the pace of change, aiming to reach its full potential, blockchain could be used wisely in conjunction with other technologies, such as big data analysis, robotic automation and IoT.
Blockchain is here and is determined to change the world, with first and foremost the way that we transport goods around the globe. Perhaps this is the time for the shipping industry as well as for the logistics companies, governments and regulators to work together to overcome any doubts and fears in regard to the blockchain paradox.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Ms. Paola Hadjilambri, Director of Business Development, at Tel: +357 26 930 800 or via email at [email protected]
Source: By Paola Hadjilambri, Michael Kyprianou – Advocates & Legal Consultants