Unblocking the Blockchain: Beyond the Hype
For the logistics sector, blockchain is taking center stage in 2018.
In the first three months of the year, we have seen Buffett’s BNSF Railway, UPS, and GE among a whole host of others join the Blockchain in Transport Alliance (BiTA), which has dedicated itself to developing the industry standards for blockchain use. We have also seen Maersk, the world’s largest shipping provider, partner with IBM to form their own blockchain joint venture.
But the progress is not as swift as it seems. The industry giants leading the charge are backing closed, permission-based blockchain initiatives, which are bound to limit their effectiveness in the long run.
Remember the Intranet?
For comparison, consider the intranet which was once used to limit access to a closed network; existing blockchain solutions are attempts to do the same. And do you hear anyone talking about the intranet anymore?
Just as the internet eventually supplanted the intranet as the mainstay technology, permissionless blockchains will do the same, and bring real disruption to the industry in the process. Not only do they enable a greater level of transparency, but they also open up the playing field for others to compete against those logistics giants. But a number of things need to happen before they do.
Logistics companies need to first digitize, standardize, and clean their data. Blockchain’s biggest weakness, and potential point of failure, is that it is not flexible in the sense of data. Once data is recorded on the blockchain, it remains there in an immutable form, meaning that it cannot be corrected or removed later on. However, this is also one of the most important aspects of the technology, as it enhances transparency and prevents tampering or fraud.
Nevertheless, data quality currently remains a major issue for most logistics companies that must be resolved before they can leverage the blockchain to gain better business insights. Due to the sheer number of touchpoints in the supply chain, data across organizations tends to be fragmented and often recorded using different units of measurement.
Within organizations themselves, data is sometimes recorded with pen and paper, or maybe not recorded at all. But the primary problem is that logistics data is typically low quality and simply inaccurate.
Therefore, the first step for other logistics organizations to compete is to take more care to ensure the accurate recording of data, or use existing market solutions to clean the data, before recording it to the blockchain. In addition, companies must start digitizing more data, and work together to develop a standard for recording it. FedEx and other companies are working together to do just that as part of BiTA, but companies outside of the organization should do the same as well.
Forming an Ecosystem of Supply Chain Partners
Once a standard has been implemented, logistics companies must come together to form an ecosystem of supply chain partners who would use the standard in a shared, permissionless blockchain environment.
With logistics customers and suppliers sharing standardized data on an open platform, each of them would gain visibility over the entire supply chain, allowing them to improve the efficiency of their shipments by reducing waiting times and better utilizing capacity.
With this exact goal in mind, another member of BiTA, ShipChain, has worked to develop a supply chain management system that brings this visibility to each step of the logistics process. Currently, the only companies that have such visibility over the entire supply chain are e-commerce giants like Amazon and Alibaba, which have developed their own complex logistics networks. In fact, not even Maersk has such a detailed understanding of the supply chain, which is exactly why the company has launched its own blockchain venture.
But Maersk is not the only one. A number of other companies with large logistics operations, including Walmart, have also begun to develop blockchain initiatives, hoping to bring on their own ecosystem of partners. However, this is only leading to inefficiency and giving other logistics companies the upper hand. Blockchain’s value is ultimately derived from the number of people using it, which is why this type of fragmentation is actually giving logistics companies a strong incentive to unite.
Thus, as larger logistics companies continue to see fragmentation in the blockchain space, others would be wise to band together under a permissionless environment to share their data and stay competitive. However, keep in mind that without clean data, effectively implementing the blockchain, for a company of any size, is a lost cause.