So, you’ve heard of Bitcoin – the virtual currency that is currently being sold at ten thousand pounds a pop. No doubt you’ve read the fascinating stories of how fortunes have been won and lost when the currency has been traded.
Anyone clever or brave enough to have invested just UK£50 in Bitcoin in 2008 – the year it was created – for instance, would now be a millionaire. And on the flip side, there are tales of the not so lucky. Laszlo Hanyecz’s story falls into this bracket. In 2010, the software developer allegedly paid a trader 10,000 Bitcoins for two pizzas. At the time he probably thought he was getting a good deal. However, fast forward to the current day and each pizza would now be worth around USD$10 million. [i]
But what is the link between Bitcoin and freight exchange platforms? Well the two are connected not by bitcoin itself but by blockchain – the record keeping system that validates all Bitcoin transactions.
So what is the blockchain and how in the future will it make a difference to you?
To put it simply, imagine a set of digital records which can be shared amongst all the stakeholders involved in a transaction. In this case, let’s suppose that the parties in question are a freight exchange platform, a carrier and the customer. The blockchain allows each participant absolute visibility by recording every step of the agreement regardless of the complex steps in the freight supply chain. Each transaction that takes place between the triumvirate is then placed into a separate block. Blocks are then connected, and a series of blocks then form a blockchain. The beauty of the blockchain is that it is not owned by one actor, and therefore information in a transaction cannot be changed without obtaining the permission of the participants in the chain.[i]
But is the hype around blockchain justified? And can it really revolutionise the freight industry and the highly intricate and complex supply chains that surround it?
Professor Chris Speed of the University of Edinburgh says that collaborative logistics platforms could one day utilise the technology to deliver efficiency gains, eliminate waste and provide an enhanced security architecture for members.
Speed, who is the University’s Chair of Design Informatics says, “The blockchain will guarantee members more transparency, and it could also provide unprecedented visibility across freight supply chains. This means that potentially fleet operators, using exchanges in the future, might be able to better identify empty vehicles, containers and better consolidate loads, which could potentially reduce emissions and improve profit margins across the board.”
Chris Speed, Professor at the University of Edingburgh
Combatting theft and fraud…
Speed also believes that blockchain could help to reduce cargo theft and fraud, which costs the industry millions of dollars each year.
“…As blockchain is a distributed ledger, all the parties involved in the transaction could, providing the contract allows, see what is inside a container or a truck, and then confirm the contents. Secondly, the real-time visibility that blockchains provide could reduce VAT fraud or carousel fraud, as technically, the blockchain would be able to identify, if and when, a consignment had been tampered with, and then alert those involved in the transaction.”
But for many, including Morgan Stanley, the real power of blockchains is their ability to standardise payments, by enabling the creation of smart contracts across the supply chain, which could one day nullify waste in the freight sector.
Blockchain technology, thinks Professor Speed, could help eradicate operational inefficiency, which poses a constant challenge for the global freight sector globally annually. Take recent statistics from the New York Shipping Exchange for example. They highlight that over-booking and cancellations cost the ocean-going freight sector around USD$23 billion every year[i], while in a study, published by the Institute of Mechanical Engineers found that lorries in the UK account for 150 million wasted miles each year. [ii]
And with the Blockchain in Trucking Alliance (BiTA) expecting “some commercial blockchain applications” to be deployed by operators “in the next 36 months”, Speed believes that it could, in time, present a game-changing opportunity for the freight sector, to lead on and set industry standards. So how could freight exchange platforms with large virtual fleets and their members benefit?
“Theoretically speaking, collaborative logistics platforms which invest time and money in building and operating their own blockchain could provide greater visibility to their members. How? Because each transaction generates a new block in the chain, and each new block carries not just details of the transaction, but also the unchangeable data record detailing the maintenance and repair history of the engine, the exhaust, the body and tyres of the vehicle. It might also be possible for members involved in the transaction to verify all elements of compliance including insurance details and work history.”
If then blockchain has the potential to revolutionise the transparency of transactions in the freight sector, to what extent would those 3PLs and freight exchange platforms who choose not to incorporate the technology into their systems find themselves at a commercial disadvantage?
Says Speed, “…Blockchain will, I think become an industry Kitemark as it provides added security around each individual transaction. That is not to say that the blockchain is infallible, but the added layer of protection and transparency that it affords to all those using it, means that it will one day become an industry norm when transacting…”
[i] Morgan Stanley Research Foundation
Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype
Date: November, 24, 2017
[ii] UK Freight: In for the long haul
By Philippa Oldham
[i] Business Insider
Someone in 2010 bought 2 pizzas with 10,000 bitcoins — which today would be worth $20 million
By Rob Price
Could Blockchain Technology Impact on US freight transportation?
By Samuel Prince
Date: November 30, 2017