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Blockchain tech in Maritime & Supply Chain: Is it just a fad?

At MAX, we always promote forward thinking in our organisation. From time to time, we feature interesting thought articles from our staff in our company blog. Opinions expressed in this post are those of the author, and do not necessarily reflect the official view of MAX Groups Marine. This article is written by Ang, to provide a simple blockchain explanation to our industry friends, and discuss the potential of the tech.

bitcoin rise

With Ether & Bitcoins soaring to all-time highs (despite the most recent market correction), blockchain and cryptocurrency are all the buzz in today’s technology world.For those who are not familiar with the terminology, “blockchain technology” is the underlying technology for a cryptocurrency like “Bitcoin”.

Blockchain enthusiasts have been raving about the great benefits of blockchain technology and how it will revolutionise industries like insurance, finance, healthcare, energy, government & law, as well as the maritime industry.

With news like Maersk and IBM teaming together to explore blockchain solution for the shipping industry, it is understandable that many are excited when even the largest container shipping line is starting to take this tech seriously.

However, setting the hype aside, we have to think: is this a technology that has real value, and that it is really going to disrupt the maritime industry? Or is it just a fad that has no concrete value?

I mean, there was a time not too long ago where everybody seemed to want to build their own mobile app, but realised that adaptive websites may be a better option for most uses?

ibm maersk reuters news

IBM & Maersk teaming up in exploring blockchain tech. By Reuters.

[Update 19/1/2018]

The system is expected to be made available to the ocean shipping industry around mid-2018.

reuters-2018-ibm-maersk-blockchain-news

About two years ago, in a casual meeting in Indonesia, I was impressed when even leaders in the shipbuilding industry were aware of the Bitcoin buzz back then. It is truly amazing how much blockchain-based technologies have grown since. Many are claiming this technology as one of the most important inventions of our time. Wow. What is it that they see in it? How is it different from the solutions we are currently using today? What are the successful use-cases?

To be clear, I am no computer science expert but I have been following the developments of this technology for the past 2-3 years now and I hope to share these interesting findings with my colleagues.

To truly explore the real-life applications of a blockchain, one has to understand the core features & benefits. Most people I spoke to (both within and out of our organisation) in the industry struggle to grasp the concept of blockchain technology. But that’s totally okay. Let’s face it, how many of us really understood how the internet actually works? So here is my attempt to explain what a blockchain is in a VERY general way so that even your mum and dad can understand the core concept (hopefully).

If you want more details, just google up blockchain.

blockchain maritime

What is a Blockchain?

Google blockchain and you will find many definitions in the lines of:

Blockchain is a distributed ledger.

Yes it is the simplest definition out of thousands there. Yet, it might still a little complicated for your dad & mum. Let’s take a minute to translate those complicated jargons to more relatable terms, shall we?

Distributed —> Shared by many, not present in one central location

Ledger —> Record book

That essentially means:

Blockchain is a shared record book.

It is a network of shared record books. There are thousands of copies of the exact same record book stored in many computers all around the world (both home computers and business servers). This record book can be used to record all sorts of info, including but not limited to, money.

*In most articles out there, the blockchain definition given is specifically referring to the Bitcoin’s blockchain. But the idea of this article is to discuss the use of blockchain-based technologies, as there are plenty other blockchains out there.

 

Simple example: A sending B $10:

When A wants to send money to B, a new line item is created detailing that transaction.

distributed-ledger-chain

This line item then gets sent off to thousands of other computers who have a copy of the record. Those computers confirm that this transaction is authorised, and ultimately they agree (or disagree) that everything about the transaction is legitimate before giving that line item a tick of approval. It has to match up perfectly on every copy of the record.

It is as if A and B had a few thousand witnesses witnessing the transfer of money from A to B and all agree to it being a valid transaction. They are also responsible to check whether the amount stated is correct, among all other details.

Why is this system of shared record books such a big deal?

  1. Participants can confirm transactions without the need for a central certifying authority.
  2. The record is also much more secure as it is not stored in a central location. Because the record is distributed in many copies around the network, the only way to tamper with the record is to change the MAJORITY copies at all the records all around the world, AT THE SAME TIME, since the network will drop falsified records which don’t follow the rules. As long as the scale of usage is large enough, compromising a blockchain transaction is practically impossible.
  3. Yes, it is technically a public record. But coupled with cryptographic technology, we can ensure that only intended participants can see what they are allowed to see.

In short, blockchain is a technology that establishes trust, accountability and transparency. So you do not really need to trust the other party in order to enter into a transaction with him/her, and you can trust that the contract set in place cannot be amended.

Many are excited of how it can be used to streamline business processes.

trade finance

Current problem in maritime / shipping / supply chain transactions

In maritime and global trade, transactions involve a ton of paperwork. That includes multiple bills of lading, bank letters of credit, sale invoices & contracts, charter agreements etc. These paper documents exist simply because we can not trust each other (too much) in business. Each party in the supply chain wanted assurance of payment for its performance, and protection against the unauthorised delivery of goods. As a result, lots of manpower is involved in the process and some transactions even require third parties like Banks to provide Letter of Credit as protection.

These add to transaction expenses and long processing hours. Despite having all these third parties, there are still many quality control issues, document fraud cases and expensive dispute arbitration.

sea

Re-imagining a new process with smart contracts & blockchain

The rise of a protocol like Ethereum (one of the many types of blockchain-based technology) allows people to program smart contracts on its blockchain. Here are the most discussed potential use-cases, relevant to the shipping and supply chain industry. What do you think?

  1. Improving bill of lading & custom process.

One of the companies working on this is Israeli startup Wave, who is currently working with Barclays to explore the use of blockchain to facilitate the move to ‘paperless trade’.

  1. Contracts to Smart Contracts

Smart contracts are applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. There are many companies currently working on these smart contract services.

  1. Bank’s letter of credit

News of a new prototype developed by Bank of America Merrill Lynch, HSBC, and the Infocomm Development Authority of Singapore (IDA) bringing the letter of credit (LC) transactions onto the blockchain proved big banks’ interest in real world application of the technology.

This statement from Ather Williams (head of global transaction services at BofAML) highlights the potential in this space “Blockchain has reshaped our thinking on how to make transaction processes more efficient and transparent for all parties. The success of this proof of concept is a significant development towards digitising trade transactions, potentially resulting in considerable benefits to the supply chain process,”

  1. Goods inspection report

Oftentimes, goods inspection by a third party is required to ensure quality assurance before shipment. However, these inspection reports can be amended and the process to verify and perform a validity check is extremely slow & inefficient. This is similar to the education certificate case use. As reported by CNBC, some schools have already started implementing this technology to minimise education certificate fraud. I see a similar use purpose in goods inspection report.

  1. Goods Tracking

It is reported by Fortune that Maersk has completed the first test of a system that would manage the company’s cargos using blockchain. Various companies are working on all sorts of tracking systems with blockchain as a base while adding the use of electronic tracking systems. Walmart’s exploration of the tech has yield significant results as they claim to have “reduced the time it takes to track food from days to minutes” in their supply chain. And that they are even convinced to try applying the tech in other areas in the company.

 

Of course, there are still currently many limitations – block size, speed as this tech is still in its infancy stage. And different blockchains have different fundamental technologies. But the idea of a distributed ledger is really interesting especially for a multi trillion dollar industry like trade finance. And we do not know yet all the potential things we can do with it. When internet was first introduced, I am sure we wouldn’t have imagined how it could become such an integral part of our lives. Will blockchain become a fundamental platform for the next wave of innovation in our industry? Only time can tell.

Feel free to let me know your thoughts.

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