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Blockchain Reduces Costs in Shipping Industry
Blockchain Use Case in Supply Chain
Concept of Blockchain was originally developed to make secure peer-to-peer transactions using cryptocurrencies. Majority of use-cases for Blockchain have been introduced in the Financial Services Industry. But with its Distributed Ledger technology and Smart Contracts, Blockchain has been considered by many other industries for reducing cost, increasing efficiency and even for creating new revenue streams. One such industry that is experimenting with Blockchain is the Shipping Industry.
Cross Border Supply Chain is a complex process with multiple parties involved, like freight providers, security agencies, border control, logistics providers, over and above the organizations involved in transactions. A lot of risk is involved, which entails huge amount of paperwork. Blockchain provides solution to ease the bottle necks and save time, completely transforming the existing ways of Cross Border Supply Chain.
What is Blockchain?
Blockchain is a network of many distributed parties who verify transactions. This eliminates the need for central authority. All parties can interact with each other and all interactions are public and pseudo-anonymous. The information stored on blockchain is unchangeable once it is recorded.
Currently there are not many businesses that do not see Blockchain restructuring the complete value chain. It is the most talked about technology and some early starters have already rolled out full scale Blockchain implementations and proof-of-concepts. While it’s most often talked about as a currency, Bitcoin is really more accurately described as a database or ledger that tracks transactions, hosted across many nodes and cryptographically guarded from fraud.
How Cross-Border Supply Chain Functions?
Most of the goods in global trade are carried by the ocean shipping industry each year. There are multiple parties involved and lots of paperwork. The system is also prone to frauds and errors, and thus the products spend an excessive time in transit, raising questions on the product quality. A simple cross border shipment of goods can go through nearly 30 people and organizations, including more than 200 different interactions and communications among them. So, the current system is complex, time consuming and prone to error.
Maersk & IBM Propose Cross-Border Supply Chain Solution on Blockchain
IBM and Maersk are using a blockchain built on the Hyperledger Fabric to manage the supply chain for container shipping. Maersk did a proof of concept (POC) with IBM to track a container of flowers from Mombasa, on the coast of Kenya, to Rotterdam in the Netherlands. Using digital records and a blockchain can sharply reduce costs. It would help manage and track the paper trail of tens of millions of shipping containers globally by digitizing the supply chain process from end to end.
Maersk is a Danish shipping company, and is the largest container carrier in the world with 18% to 20% of the market. Maersk has been working on digitizing the physical processes and paperwork that impact every shipment and are costly additions on the cross-border trade.
IBM Blockchain is a commercial deployment of Hyperledger Fabric v1.0, enabling users to build a blockchain network quickly. It can run highly secure blockchain networks for regulated industries and manage decentralized network across members.
The Business Problem in Shipping Industry
Traditionally, a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, including more than 200 different interactions and communications among them. Organizations include trading companies, shipment & transport companies, custom administrations and security & border protection agencies. Also, the costs of trade documentation processing and administration are high, as per IBM, these costs are estimated to be equal to the actual physical transportation costs. With the manual processes and paperwork, chances or fraud and errors are also high, which can result in products spending more time in transit and poor inventory management, ultimately increasing waste and cost.
How Maersk can reduce the paper work and cost, and ensure shipments spend the lowest time in transit?
Blockchain Solution
The supply chain blockchain IBM is using with is a closed group, a permissioned blockchain where all the participants are known and have permission to participate. Blockchain provides each participant end-to-end visibility based on their level of permission. Each participant in the supply chain ecosystem can view the progress of goods through the supply chain, understanding where a container is in transit. They can also see the status of customs documents, or view bills of lading and other data. Detailed visibility of the container’s progress through the supply chain is enhanced with the real-time exchange of original supply chain events and documents. No one party can modify, delete or even append any record without the consensus from others on the network.
How Blockchain Solved the Problem
For shippers, the planned solution can help reduce trade documentation and processing costs and help eliminate delays associated with errors in the physical movement of paperwork. It will also provide visibility of the container as it advances through the supply chain. For customs authorities, the solution is intended to give real time visibility, significantly improving the information available for risk analysis and targeting, which may eventually lead to increased safety and security as well as greater efficiency in border inspection clearance procedures.
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