Arguably, the shipping industry remains one of the most archaic, cumbersome and data-handling intensive industries, the mechanism to relieve the burden of the ‘heavy-data-lifting’ may just have been found…
The very definition of shipping means that, often, there are plural parties involved in any transaction. Such stakeholders may include; traders, the shipping company themselves, Government Bodies, buyers, sellers etc. and each with different tiers of involvement in the process and variable permissions to access the partitioned information. At present and in real terms, this means a lot of documentation sloshing around the industry in order to ensure the consistency of the movements. This can lead to administration bogging down the process and incurring costs to the trade. As international trade increases in complexity and frequency, the difficulties in this processing are at risk of continuing to grow which in turn increases the scope for error and cost.
Blockchain may provide a solution to this. First applied to the financial world, in the form of Bitcoin, the concept is considered by many to provide immense cost and time savings to a wealth of industries – particularly to those like shipping which are very process heavy. To paraphrase somewhat, the basic principle of blockchain is that it is an open source, peer-to-peer piece of software which is completely decentralised, encrypted throughout and each transition is managed by the network it is built within – quite the mouthful but incredibly exciting.
In ‘English’, this means that the software is open to all and its purpose is to facilitate transactions between parties. This is completed by a series of ‘blocks’ in a ‘chain’ where the management of each transaction is monitored by the network collectively and without the requirement for an intermediary (such as a bank) – hence the decentralisation aspect. Such entries cannot be changed at a later date without ‘approval’ from the majority of the network, thus the accuracy of the entries is reinforced over time and converges towards total accuracy.
Benefits of Blockchain.
From a commercial perspective, the benefits from this technology are substantial and truly realisable. The below list highlights some of the key examples:
Piles of paper; vanish – in turn this means that the accuracy throughout the process increases as more and more is automated and human error diminishes. In the world of shipping - where the value placed in documentation to enable the trade is massive - this can transform the process.
Market access; increases- as parties are able to communicate directly and without the intermediaries. On the aggregate process, this reduces the resistance incurred within the system and significantly streamlines processes.
Security; tightened – simply put, the process is fully encrypted and sealed end to end. This means that sections cannot be changed without the wider network support which reduces fraudulent activities.
Speed; accelerated – because of the reduced friction throughout the process, the whole thing becomes much faster and can also provide real time updates. This means payments can be made and received rapidly and issues flagged earlier.
Transparency; enhanced – each party can have complete or partitioned access to the relevant part of the chain which concerns them with appropriate ‘private’ and ‘public’ keys
Cost savings; realised - delays with documentation and discrepancies with Letters of Credit (to name just two examples) can add significant costs to trades and provide unwelcome exposure to potential legal costs.
For the purpose of balance, here are some of the drawbacks...
Complexity; intense – because the nature of shipping globally, it commands incredibly intricate, multi-layered operations and to therefore find a single platform to combine all components may be challenging and difficult to combine. It is of critical importance to ensure that the network is both aware and able to actively responsible to ad-hoc changes.
Contractually; challenging - as it is common place that parties will have their own terms, it is important that each parties’ preferences can be integrated and respected throughout the process.
Adoption; resistant - within some jurisdictions not yet fully accepting the technology, it may take time before the widespread adoption to bring the technology to full fruition. Because it is a ‘network’ based process, it means that it requires participants for it to operate to its full potential. Having said that, more government bodies, agencies and organisations are getting involved in this concept. Many believe it's only a matter before it becomes the mainstream.
Redundancies; indirect cost - technology can unfortunately lead to a reduction in staffing. As it stands, effectively any function that can be repeated and regimented is at risk of being automated. By its very nature, clearly those positions involved in the processing and completion of documentation are highly at risk and therefore entire teams may potentially be let off. Despite the fact that some people will be recruited to support the technology, many argue that the net benefit on staffing is still negative.
Maersk are investing heavily into this space by entering into a joint venture with IBM - considered to be “the leading enterprise blockchain provider”. As Maersk highlights, roughly ⅕ of the physical cost to move the goods is made up of documentation and administrative fees so clearly any reduction in these can correlate directly to making trade more competitive and the opening of new markets. Because all of the parties involved in the shipping markets are able to access their relevant chunks of information and collectively ensure its accuracy, it means that the shipping industry can collectively improve as an efficient body.
The critical detail as to why blockchain in shipping specifically is so useful is because all of the different parties involved can access their appropriate level of information required, in real time and the accuracy of the entire process is reinforced by the wider network - this means that administrative burdens can be significantly reduced and all of the “players in the supply chain start to benefit”.
In a further example, CargoX are building a platform to directly tackle the management of B/Ls (or Bills of Lading) through the integration with Ethereum Blockchain. What this means ‘on the ground’ is that the vital component of issuing proof of payload ownership will happen paperlessly, securely and instantly. Two key pillars have been created to facilitate this process:
1) specific B/L exchange protocol to enable the transfer of B/Ls throughout the network.
2) development of a stand-alone (or “decentralised”) app enabling authorised users to be able to issue the contracts.
Interestingly, in this particular example, a cryptocurrency (CXO) is also being developed to be the “gas powering the CargoX ecosystem”. This currency effectively acts as the ticket to be able to issue and interact with the B/Ls. What is really exciting with this model is its potential ability to applied to a range of instruments, including Letters of Credit, which in time may streamline the shipping industry.
Given the manually intensive and data heavy processing required with international shipping, it is perhaps the ideal candidate to be subject to significant and tangible improvements across all of the parties involved. However, as with any ‘network’ based piece of technology, the initial adoption won’t be instant, nor consistent, and it will take time for the full benefits to be fully realised.
As outlined in the case studies above, there are multiple methods being drawn-up to be the driver to change the industry. Perhaps only time will tell as to which becomes the most widely adopted platform or perhaps individual platforms forming part of a wider blockchain should each eventually specialise on their own respective component to support the greater objective.
Once achieved though, the possibilities are really exciting and will completely revolutionise the industry.
For OCI, we are energised by the prospects that blockchain presents, especially when applied to the shipping industry. It means that processes will become smoother, less involved and ultimately should mean that we can enhance our focus on our true passions and skills; building and maintaining effective relationships, sourcing material and expanding markets.
More information on how OCI can support and expanding your business’ trading options can be found below or on our website and we will be glad to assist you:
Telephone: +44 (0) 203 137 7326