by Anthony Sabbadini
Guest contributor Anthony Sabbadini is CTO and founder of SCTracker, a supply chain tracking technology company. Readers of Logistics Trends and Insights will receive a free account and 25% off any premium services within our range of GPS and mobile solutions. Enter promo code “SCT25OFF” at sctracker.com
Freight forwarding is a business that depends on multiple parties coordinating, typically a shipper, a consignee, and at least one carrier. Add in a warehouse, multiple ports, various customs brokers, dozens of phone calls and emails spread out over weeks or months – often in different languages, time zones, and handled by many people – and integrating all of this in our digital age with one unified platform is a problem that never seems to receive a solution. “The less time we have to waste on basic emails and phone calls the more time we have to grow the business” says Tim O’Brien, manager at Logistic Services USA. Enter the blockchain.
IBM has made waves recently with high profile partnerships with Maersk and Wal-Mart to track shipping containers and inventory on the world’s largest shipping line and retailer, respectively. The blockchain utilizes IBM’s Hyperledger technology, and in an attempt to compete with Microsoft’s forays into the blockchain using the Ethereum standard, IBM has open sourced its software. With this it hopes to further adoption and lessen fears that seeks to control the ecosystem, but rather become a preferred vendor providing computing services such as its IBM Cloud where it hosts the Maersk solution.
Popularized with the introduction of Bitcoin, the blockchain is, in essence, simply a public, shared record of “truth” that contains a history of all transactions to date. In the cryptocurrency world, which includes Bitcoin and other popular digital currencies like Ethereum, the blockchain shows trades between various holders of the currency. The “crypto” component stands for cryptography, which is used to secure the access to sending (spending) cryptocurrency in much the say way that public-private RSA encryption technology works when sending a secure transmission over the internet via HTTPS / SSL. In essence, people can see your “public” key to send you cryptocurrency, but only you can then resend it using your “private” key. On platforms that accept payment in cryptocurrency, they will publish their public key often in QR code format – that’s what you’ll see as the square of pixels shown on a website – which allows anyone to send currency. In order to record the transaction and make the payment official, exchanges operate that (for a small fee) will add the record and reconcile it with the various other exchanges and miners. The payment is only confirmed when the transaction, added to a grouping of other transactions known as “blocks” which are cryptographically linked to all preceding blocks (hence the name Blockchain), is verified by the miners as authentic. They perform this verification using something called a Proof of Work, which is time and/or computationally intensive to make defrauding the blockchain extremely impractical. The miners are then rewarded for their effort with a sum of bitcoin.
Why all this complexity? Because the blockchain is designed as a peer-to-peer system, free on any central authority, steps must be taken to ensure transactions are legitimate to ensure continued usage and protection of wealth (of money or information.) The centralization would enable much faster verification and storage of transactions, but in doing so all participants would have to implicitly trust the authority not to violate their privacy and steal from them. In the years following the 2008 financial crisis, where central banking authorities around the world arguably helped create and then barely averted a total banking system collapse, blockchain proponents contend that multiple participants all incentivized to ensure honest transactions will create much more stable system dynamics and remove the risk of a central point of failure.
In the case of the supply chain, decentralization using a common standard offers many advantages over giving control of all supply chain information to a central authority. First off, very few if any technology vendor can credibly claim to have a single solution to reconciling all of the complexities of a freight forwarding supply chain. EDI 214 was an industry standard that is still used in the trucking industry, but requires private parties to store and transmit information on request, which is costly in practice and offers no guarantee of availability if a vendor goes out of business or doesn’t keep their connection open. By placing the information permanently in the public record, the blockchain minimizes risk of a loss of information access. With encryption, the information is secure from third parties – even if they can access the blockchain itself – it will simply be unreadable without the appropriate keys. The second main advantage is one of sharing power. Granting a single authority access to all supply chain information would be tantamount to giving a company access to all movements of goods in the world – a target perhaps a bit too tempting for even the most heavily insured customers to trust. Also, ceding control of a single repository to another company may not be something a major competitor in the logistics industry would wish to do. With the blockchain, no single company controls the record, so industry participation could increase as a result.