A Blockchain Revolution in Logistics?

“Could blockchain be the new Internet?” These days, that’s a not uncommon question to encounter. Thirty years ago the Internet was a brand new technology that has since changed everything not only in everyday life, but also in the way we conduct business. Could blockchain technology have a similarly revolutionary effect — and, more to the point, could it revolutionize the logistics industry? Let’s take a look. 

What is blockchain technology?

In simple terms, a blockchain is a database stored on multiple (often millions) of computers. Each entry in the database is called a block, and each block is marked with a timestamp and linked to a previous block. Two factors make this type of data storage very secure:

1) There’s no central database that can be hacked — if one version is hacked, there are many other identical versions that are still secure.

2) Many users can add entries and access the database, but they cannot change or delete any of the existing blocks.

(For a more in-depth and rather fascinating explanation of blockchain technology, check out this Blockgeeks article.)

Supply chains involve dozens of geographical locations, multiple entities, and scores or hundreds of stages, which makes it very difficult to track events and investigate incidents. Blockchain technology could enable logistics companies to securely store and track all information related to a shipment, creating a permanent and inalterable trail of events and bringing two major benefits:

1) Transparency, traceability, and theft prevention

2) Increased efficiency and reduced costs

Transparency, traceability & theft prevention

Investigating illicit activities and establishing accountability across a supply chain are extremely difficult, with some consequences being counterfeiting and theft, including fictitious pickups. This relatively recent trend in logistics involves fake insurance documents, DOT numbers, and pickup documentation.

By registering the transfer of goods on the ledger as transactions that would identify the parties involved, as well as the price, date, location, quality, and state of the product, and any other pertinent information, blockchain technology could bring transparency, traceability, and theft prevention to logistics, and would make supply chain management much easier. The decentralized structure would also make it impossible for any one entity to own the ledger and manipulate the data.

Efficiency up and expense down

The efficiencies created by this technology will get orders filled and delivered faster. It can record the transfer of raw materials and goods as they move through the supply chain as well as track purchase orders, shipment notifications, and receipts. Blockchain also has the ability to assign a serial number or bar code to goods so that they can be easily traced.

Losing orders and information costs money, whether the product needs to be replaced or the customer needs to be refunded. All entities along the supply chain benefit from automated data flows, as blockchain technology creates a trail that can reduce delays and human error.

Another innovative possible use of the blockchain to bring greatly enhanced efficiencies in the supply chain is the use of radio-frequency identification (RFID) tags. Pallets with RFID tags would communicate their need to get from point A to point B by a certain date. Carrier “mining” applications would bid for the right to move that load, and the RFID tag would award the business to the carrier that best meets a shipper’s price and service needs. Then as the shipment moves along its journey, it would continue to be tracked by the blockchain.

Need for scale

In logistics, the use of blockchain technology would result in network effects — the more participants, the greater the value of the blockchain. However, in a Catch 22, this same effect makes it difficult to get started.

In the beginning, blockchain solutions are likely to be implemented by large companies, which would need to require their supply chain partners to participate in order to reach the scale to make the technology effective.

A proliferation of small groups, however, would hinder the creation of standards that would make the technology broadly useful across the whole industry. Already several organizations have put themselves forth as standards bodies, but none has yet reached the necessary scale.

The revolution is still around the corner

Given that today’s production and supply cycles have become extremely fragmented, complicated, and geographically dispersed, rendering the supply chain an opaque and faulty process that is extremely hard to manage, implementing blockchain technology throughout the industry could bring enormous benefits. The greatly increased transparency, traceability, and security would go a long way toward promoting trust and honesty, and preventing questionable practices.

However, even though it’s been around since 2008, blockchain is only just beginning to be used in logistics. The need for scale, established standards, and the participation of all entities along the chain mean that it will be some time before its use is ubiquitous.

But when that day comes, the revolution will have arrived.

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