How Blockchain Can Increase the Efficiency of The Trade & Logistics Industry

John Monarch, CEO of ShipChain, a blockchain-based shipping and freight company, shares his vision on decentralization in the logistics industry and dwells upon solutions of the major sphere-connected problems.

Photo: Matt Champlin / Flickr

Photo: Matt Champlin / Flickr

Trade is an important factor in the development of any economy and the emergence of modern civilizations.  Globalization has opened new trade routes, technologies have changed the opportunities for buying and spending, and, naturally, the need for transportation has reached its historic high. Trade and logistics are somewhat backbone of the every major development in today’s world.

At the same time, most shipping customers are rightfully shocked and confused when looking for brokers, still relying on obsolete paper documents, written manifestos and verbal arrangements for the delivery of goods from one point to another. It’s time for a breakthrough in the handling of the freight process.

Market Review

The movement of goods has a significant and growing influence on the daily lives of people around the world. According to the market report published by Transparency Market Research, “the market’s global value is expected to grow to $15.5 trillion by 2023 , making it one of the largest industries on the planet”. 55 billion tons of freight was transported in 2015 alone, with expected growth to 92 billion tons by 2024.

The United States is the largest, but also the most fractured market in the logistics world.  With nearly 4 million total drivers (1 of every 9 being an independent owner-operator), 500,000 trucking companies, thousands of adjacent logistics companies, the industry makes up nearly 10% of the GDP.

It is possible to use various channels for the shipping freight: air, sea, rail and road. The life cycle of any transportation, regardless of the channel used, is determined by four main participants. Shippers are the customers of the logistics services, they are the actors, who have freight and need it transported without necessity to aidlessly coordinate several drivers. Brokers coordinate carriers to organize multimodal orders. They act as dispatchers of the industry. Carriers can be rail, air, sea, road and others. But most carriers operate only in one segment. Drivers are operators of a specific vehicle from the park, some are “owner-operators.”

Problems of Modern Logistics Industry

Here’re the main problems of the modern logistics industry:

  • Bad Tracking

If a package is delayed or late, but it`s location information is regularly updated, this reduces the likelihood of customers sending complaints or will require reimbursement. However, the transportation industry does not meet this requirement. Tracking problems lead to confusion among carriers, failed hand-offs, failed deliveries, and even lost shipments. Economically, this is a disaster. Loss of efficiency, fuel and time, as well as partial loss of production, are added to billions of dollars a year in the freight industry – the costs that brokers rarely cover and that completely fall on the shoulders of the senders.

  • Lack of Transparency

The lack of transparency is mainly due to unsatisfactory data processing practices (or, worse, to the deliberate failure of the parties to provide accurate data). Often, due to fragmentation, and insecurity or in case brokers want to protect the exclusivity of their schemes, they can not or do not deliberately notify the sender of the names of carriers and the names of drivers involved in the carriage of the goods.

  • Absence of responsibility

The US Federal Bureau of Investigation estimates the annual losses associated with the theft of goods in excess of $ 30 billion in 2016 and predict further growth, with an average theft amounting to 190,000 US dollars. Theft of cargo increases the prices in the industry by about 20%, which adversely affects all customers of the freight industry, that is, practically every single person.

  • Middleman Markup

Increasing the cost of the cargo and reducing the payment to carriers, brokers often charge the price to their own advantage, sometimes up to 30-50%.

  • Misaligned Incentives

All of the above mentioned problems together can be defined as a problem of improperly constructed incentives. It is profitable for all to show dishonesty towards the next party and to break laws  or safety standards as global manufacturers lack information and material visibility across their supply bases. In this regard, senders and customers are interested in finding a better solution.

How Blockchain Could Help

According to KPMG, 40% of world producers are experiencing problems related to lack of information and control of materials at their supply chains. In some cases, companies continue to use paper accounting books to track their products. That leads to considerable losses of time, resources and money.

To solve this problem, modern technology is required, and it is possible to use a fairly simple concept. Imagine a fully integrated system covering the whole supply chain from the time of shipment from the enterprise, field or farm to the delivery of the final product to the customer’s site, combined with the reliable and transparent smart contracts.

  • Tracking & Transparency

Upon delivery and confirmation, the contract will be completed and recorded on the main blockchain, releasing any payment escrows. A system based on a blockchain system will ensure the encryption of each individual route point, which will be available for interpretation only to the parties involved in the process. This will increase the visibility in the supply chain for senders as well as simplify the possibility of communication for carriers, reducing delays and misunderstandings.

  • Decentralized Brokerage

Blockchain will help eliminate the need for brokers, providing carriers with the ability to search for suppliers and providing an intelligent route for transportation by all modes of transport, based on factors such as distance, weather conditions, fuel consumption, etc.

  • Asset Security

The use of blockchain technology in the freight industry to encrypt geographic data increases the visibility of cargo and thus dramatically reduces the level of theft. Using barcodes or hardware integration, RFID provides an automatic asset check each time you send reports to electronic journals. By bringing accountability to every step of the process, the blame game between carriers, brokers and shippers is mitigated.

  • ReliIncentives

Due to the encoding and encryption of information about route points and cargo data, the delivery of a digital escrow for the fair assessment of the actual arrival of goods as part of specific deliveries is possible. Conflicts between the parties regarding the location of goods are excluded.

  • The Life of Ordinary Consumers Will Change for the Better

By reducing the amount of loss, fraud, and theft, as well as cutting out some unnecessary intermediate costs, we would expect that consumers will see logistics contributing less to the price of finished goods and food. Thus, the value of goods will be reduced.

With proper application, the blockchain could really revolutionize both domestic and international trade/logistics markets.

John Monarch

John Monarch is the CEO of ShipChain, a blockchain shipping and freight company working to solve many problems in the logistics industry. Additionally, John works as the CEO and Founder of Direct Outbound, a shipping and fulfillment company.

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