Every second, value is exchanged up and down the supply chain, be this goods, services, money or data. Each exchange is a transaction, which must be fast, precise and easily agreed upon by those participating.
Blockchain technology, also known as “distributed ledger technology”, is a decentralised digital record of such transactions. However, unlike traditional trading systems where each participant has a separate ledger, each participant in a blockchain network holds a record of transactions. This is updated and validated in real time and creates a shared immutable system of record among the network members, eliminating the need to reconcile disparate ledgers.
This results in visible activities, revealing where assets are, who owns them and their condition at any point in time. Thus, in our current climate where consumers demand transparency in product sourcing and retailers they can trust, blockchain can build a competitive advantage. For instance, Walmart uses blockchain technology to record where each piece of meat is sourced, processed and stored, as well as detailing its sell-by date.
Historically, transportation has been widely perceived to be a traditional industry; however, inspired by bitcoin and the transformation of the financial market, many believe the industry is ideally placed to be at the forefront of a digital revolution, with blockchain technology an integral part of this.
So how do blockchains work?
Each transaction is stored with others in a unit of data known as a “block.” Once the transaction takes place and is confirmed by the parties, it is encoded into the block and uniquely signed or identified.
The block is then cryptographically connected to the one before and after it, which IBM explains as “creating an irreversible, immutable chain” that extends to the beginning of the ledger. This chain prevents any block from being altered, or inserted between two existing blocks.
Consensus is required from all member computers, “nodes,” for the next block to be added. Blockchain is permission-based: each member must have access privileges that ensure information is shared solely on a need-to-know basis.
All validated transactions are then permanently recorded and distributed across a number of nodes, so even a system administrator cannot delete a transaction.
Smart contracts which automatically implement terms and conditions without human intervention are integral to blockchain technology. Their conditions are mutually agreed upon by network members in advance, thereby eliminating unnecessary paperwork and streamlining the whole process.
Charterparty and bill of lading terms and conditions could therefore be an important demonstration of the advantages of this technology. The contract will be published by the owner or charterer and the other party will negotiate the price and freight directly via the blockchain network. Through the use of smart contract technology over the blockchain network, agreements can be autoexecuted and parties will be able to validate the outcome instantly without the need for further exchanges.
The use of blockchains could eliminate up to 80 percent of the paper documents currently used during the shipment of goods. The plethora of paper processes integral to global trade has been one of the reasons the shipping industry has lagged behind when it comes to digitisation. Blockchain would allow for an environmentally conscientious solution that minimizes courier costs and reduces paperwork delays, fraud and errors.