Logistics industry interest in the potential of blockchain technology to radically improve the management of supply chain operations is rapidly gaining momentum.

Globally, for example, that trend was highlighted earlier this year when leading container shipping line Maersk and information technology giant IBM unveiled what they claimed was the first industry-wide cross-border supply chain solution using that technology.

Subsequently, at least two other major initiatives relating to that technology and its potential implementation across ocean shipping-based supply chain operations were announced in Asia.

One was in Japan where major container shipping lines MOL, NYK and K Line, together with logistics group Nippon Express, joined a consortium of 14 trade-related companies which claims to be that country’s “first initiative on using blockchain technology on trade-related operations.”

That group’s stated objective is to “study measures to address issues crossing over corporations and business categories, through proof of concept aiming at practical ways to use blockchain technology to streamline the flow of trade information” over an eight-month period August 2017-March 2018.

The second development was in Singapore where shipping line Pacific International Lines (PIL), port group PSA International and IBM reported in August that they had signed a memorandum of understanding “to explore and trial proof of concept blockchain-based supply chain business network innovations.”

Other international freight transport sectors, notably the air cargo industry, are also seeing an ever-increasing focus on the potential of that technology.

Last year, for instance, Capco, a global business and technology consultancy working for the financial services industry, collaborated with the International Air Transport Association (IATA) on a study to determine how blockchain technology would impact the airline industry as a whole.

More specifically in terms of the logistics sector, Innovecs, a worldwide software development company whose areas of activity include blockchain, noted in its recent article “How Blockchain Technology Streamlines the Logistical Supply Chain” that the air cargo sector “might be ideally suited for that technology due to high safety and security requirements.”

Expanding on that point, it claimed: “Because blockchain cannot be hacked, it allows intermediaries in the air cargo chain, from shippers to carriers, from handlers to customs, to communicate safely, cheaply and effectively.”

However, some logistics industry observers caution that the wider implementation of blockchain technology across all areas of supply chain operation is likely to be complex and require a big change in currently often parochial individual company management thinking.

“The technology is not a simple solution to implement,” says Ken Lyon, a specialist in the use of advanced information systems to manage logistics operations, managing director of Virtual Partners and an advisory board member for Transport Intelligence, a UK-based provider of worldwide logistics industry research and analysis.

“This is because, by design, it was never intended to be controlled by any single party, or company. Indeed, the exponents of blockchain technology see it as an opportunity to remove control and management from any central authority.”

Siong Seng Teo, managing director of PIL, explained that blockchain was basically “a decentralized ledger technology used by a business network to securely exchange digital or physical assets.”

“Each member of the network is granted access to an up-to-date copy of this encrypted ledger so they can read, write and validate transactions. Once a transaction is validated using a consensus process, it is instantly committed to all ledgers in the network,” he said.

Further insights into the way blockchain technology is designed to work when it comes to supply chain operations were provided by Maersk/IBM. That technology, they stated, would enable the real time exchange of original supply chain events and documents through a digital infrastructure, or data pipeline, which connected the participants in a supply chain ecosystem.

“Each participant in a 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,” they stated.

“This level of transparency helps reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.”

Overall, though, said Lyon, while the technology associated with blockchain solutions in the supply chain industry was complex, any challenges relating to that could be resolved. “The technology works. That is why everyone is paying attention to it,” he said.

However, he continued, the implications for how that technology was used were “potentially huge.” Expanding on that point, Lyon said the key challenge was how the information entered into a blockchain was managed and exchanged “and that is more of a cultural and organizational question than a technological issue.”

“Will companies be able to overcome the natural caution and general mistrust enshrined in corporate behaviour when it comes to making data available in a system? That kind of business culture is potentially a huge obstacle to the widespread adoption of blockchain technology in the supply chain sector.”

On a more positive note, though, Lyon suggested the success of several other worldwide general technological advances over the last few years should help supply chain managers, particularly the younger generation, to more readily understand and accept blockchain solutions.

“People are already much more comfortable using cloud services in the sense that they are familiar with the idea of running an application which is sitting on a computer system somewhere else and you have no clue where that might be. In the past, a lot of businesses would have been horrified by that idea,” he said.

“Another factor is the rapid development of mobile technology over the last few years – smartphones have changed the game in so many different areas of supply chain management.”

In summary, Lyon said he believed the blockchain concept, “this notion of a federated independent digital ledger,” was a fundamental technology in the same way that the internet was. As a result, there would be many more supply chain solutions established using that technology.

However, he also warned such developments could result in many supply chain industry losers as well as winners. “Blockchain solutions are likely to present a threat to middlemen, for example NVOCCs and freight forwarders, working as intermediaries for principals which, for whatever reason, do not manage certain functions themselves,” he said.

“Whether that becomes the norm will depend on newcomers coming into the market and using blockchain to remove those intermediaries. If that happens, many companies which have spent the last 40 or 50 years working as intermediaries could be erased. At the moment, though, as with many aspects of blockchain technology, it is still too early to say whether that will happen.”

By Phil Hastings

Correspondent | London