Industry giants to launch blockchain platform within global shipping and transportation sector
Barely a day goes by without an announcement on the introduction of blockchain and traceability in insurance, supply chains and automating commercial processes. Maersk and IBM have partnered to introduce blockchain technology into the global shipping and transportation industry. DHL has issued a trend report in cooperation with Accenture on blockchain technology’s potential to transform the logistics industry. So what is it?
Blockchain is a distributed ledger technology platform designed to enhance the efficiency and security of global cross-border trading. Users log and process all elements of a shipment via the platform including data sharing, payments and documentation. Blockchain maintains records and authenticates data and transactions.
Maersk’s decision to pursue blockchain
Speed, efficiency and savings are the primary reasons for adopting the blockchain platform. At present, cross-border transportation of goods are subject to substantial documentation and bureaucracy that ultimately costs the end-customer. IBM estimates that the current system costs up to a fifth of the total expense of physical transportation in trade documentation, wasted time and inefficient bureaucratic systems embedded within the supply chain.
Blockchain seeks to eradicate these issues and modernise the transportation supply chain to the benefit of all users. The platform’s ability to track freight and eliminate paperwork via a shared digital log will help to streamline the industry’s practices and reduce administrative costs. It is hoped this will ensure a secure and seamless exchange of shipments between those within the supply chain.
Recent decisions to embrace technological and procedural change within the shipping industry have prompted calls to digitize processes and provide a secure platform to enable movement of funds and data between parties. This is not least in response to growing concerns over cyber-security and associated fraud. Blockchain purports to offer an IT system far better equipped to deal with and prevent these risks.
DHL and Accenture report
The report includes initial findings on a working prototype which tracks pharmaceuticals from the point of origin to the customer, preventing tampering and potential for claims.
Impact on the shipping and transportation sector
The decisions from these industry giants will undoubtedly persuade others at least to consider embracing the technology.
The Maersk-IBM venture proposes to sell software subscriptions to all participants within the supply chain. The costs of the subscription will be presented and justified as an overall saving when compared to the current costs incurred from the inefficiencies embedded within the supply chain.
Should the platform prove successful following its implementation, participants within the industry will face pressure to subscribe to the blockchain system or risk being shunned in favour of dealing with those who use the platform.
Maersk and DHL have recognised that the success of the platform will depend on the acceptance of all participants. It is currently being tested by various market players including DuPont, Dow Chemical, Tetra Pak and US Customs and Border Protection.
Ultimately, the blockchain venture is designed to achieve significant costs savings for all participants by reducing inefficiencies across the supply chain.
Effect on the marine insurance market
The introduction of blockchain to the shipping industry may help to reduce existing risks such as fraud. Blockchain may help to protect insurers from such exposures.
The benefit and impact of blockchain will, however, take several years to emerge. In the meantime, insurers would be prudent to keep a watchful eye on its progress and assess the need to change or expand policy cover, if at all, to reflect the shift towards a blockchain platform for global shipping trade.
Blockchain technology has launched within the insurance market itself under the B3i initiative (see here for a comprehensive Kennedys guide). Maersk has agreed to use blockchain, together with MS Amlin and XL Catlin, within the marine insurance market, emphasising its commitment to driving the new technology into all parts of its business. Again, it is expected that others will follow suit should the technology prove to be successful.
Blockchain is not about experimentation. The level of investment in the technology is substantial and is likely to be the “new normal” in the insurance, shipping and logistics’ market in the not too distant future.