Will blockchain lead to a new maritime revolution?

Introduction

The name may seem odd, but it is currently the subject of several discussions in the logistics sector. The blockchain could revolutionize operation management in several areas, including transport and logistics. Given its growing popularity, many are talking about a new internet revolution.

Napster, and later LimeWire, pioneers of music file sharing services already use the technology. Bitcoin is another example. Because digital money is also based on peer-to-peer distribution, exchanges are made directly between individuals as it is the case for paper money.

There are many advantages for using blockchain technology and this is why several large transport projects are now in the experimental phase. The results of these tests will give us more precise information on this subject.

1-Main blockchain’s characteristics

While most computer systems are built as client-server systems, peer to peer directly distributes data to all users of a network without intermediate servers. The different components of the network interact, but without hierarchical structure, making the management of this network autonomous. It is the duplication of data to all members of the network that eliminates the need for centralized system.

The blocks

Blockchain is in fact an application of a peer-to-peer exchange system which integrates added value services. These transactional services are called “intelligent contracts”. They are directives for conditional execution of certain tasks and are incorporated in blocks of instructions.

The process

The process is as follows. After registering recent transactions, a new block is generated, new transactions are validated by consensus of network partners and then added to a long string of previously created blocks.

The ledger

All blocks are registered in ledger that is distributed in the network. Content is encrypted and accessible by members, but can not be edited or deleted. This guarantees the authenticity and security of the network and makes it possible to identify the source of the information.

Smart contracts

As mentioned above, it is possible to assign instructions to the blocks called “smart contracts”. They allow upgrading information and increase performance of certain tasks. For example, they can be used to allow participants to perform certain tasks automatically. A contract may stipulate that the delivery cost of a particular item may change upon delivery under certain conditions.

2-Blockchain in the maritime sector

Maritime companies are interested

Several large marine companies are currently testing this technology. Maerks and IBM announced last March an alliance to use blockchain to manage international ocean freight. Shippers, freight forwarders, shipping companies, ports would all be partners in a huge peer-to-peer network whose goal is to manage shipping of millions of containers along supply chains. The Antwerp port is currently testing a system based on blockchain. According to Antwerp, transporting a container from point A to point B often involves more than 30 parts and some 200 interactions. Currently, several of these transactions are carried out by e-mail, fax, telephone.

Walmart intends to use blockchain for traceability of goods. In early 2017, the company set up a pilot project to control its Chinese pork supplies. The identity of all actors in the supply chain (breeders, slaughterhouses, processors, logistics centers) as well as information about each transaction are recorded in a ledger. This register gives a complete mapping of the supply and anyone with access to it and can see it.

3- Integration of the supply chain

The diversity of applications is impressive and justifies the interest of the largest companies. However, logistic remains one of the main application.. The blockchain makes it possible to unify all actors and their functions into an whole network.

The following diagram provides an overview of a maritime logistics system. Included are primary activities directly related to the execution of a shipment from shippers to freight forwarders, shipowners, port operators and delivery to customers.

Maritime logistic chain

maritime logistic

 

There are also secondary activities that can be integrated into the network of a blockchain, such as inventory management, warehousing, labeling, tracing, assembly, etc. It should be noted that this scheme only considers maritime logistic, but other stakeholders could be added upstream and downstream, such as suppliers of goods and services to shippers as well as processors, distributors or other transport.

The network is built by integrating all the actors and their functions. The information, execution orders, acknowledgment of receipt, particular tasks, financial transactions are grouped in blocks, retransmitted and approved to all the partners of this chain. The players in the chain are all informed of the of the order’s process and the steps to be taken. For this reason, the traceability of goods is possible along the chain.

4- Pros and Cons

The benefit / cost analysis of the implementation of such a system is carried out in relative terms by comparing the potential performance of the new system with respect to another scenario. An alternative could be the status quo, or a solution combining complementary technologies such as “Internet Object / Big Data”.

Blockchain’s advantages should be compared to the ones of a traditional computer system that has already been tested. It is also possible to assign value-added services and intelligent contracts to traditional client / server computer networks. This comparison would take into account the fact that traditional systems offer greater simplicity and possibly better control.

Competitiveness of companies

In terms of benefits, the central element remains competitiveness. Strong presumptions exist on the potential of blockchain to gain market shares. Indeed, if tests prove to be positive, the benefits would reduce transaction costs by the elimination of intermediaries,  reduce bottlenecks in the supply chain and delivery delays,  improve coordination of activities and assure greater security. All of these benefits increase operational efficiency as a whole, the value of the service and its attractiveness to customers (shippers), hence the high potential for market share gains.

These economic stakes of blockchain surpass questions of a computer nature. If its effectiveness is verified, its spread in the industry could be rapid and even become an imperative.

To be considered

Expected benefits are still theoretical and warnings have to be addressed about  important challenges. 

Problems of cooperation

On of major factors in development of Internet has been its free content. Nobody objects to free distribution of information,. except in certain cases where information may be harmful from a social point of view. In general, information can easily be distributed without consent.
The case of blockchain is different. Blockchain is the internet of values compared to the internet of information. It is based on execution orders and transactions. For those to be executed, peer collaboration is essential, which is not necessarily guaranteed. Without consensus, the blockchain stalls and this uncertainty on collaboration may cause a problem in a competitive environment, in a context of exclusivity of services and existence of different parallel networks.

Governance Issues

Internet purists have always envisioned of a system that autoregulates itself, without state intervention or without a place of authority to ensure compliance with rules or standards. However, from an economical point of view, governance is essential for the management of a system. (this question has also been the subject of a White Paper of the World Economic Forum 3 ).

A process is initiated as soon as decisions are made at a higher hierarchical level (eg shippers). Orders are addressed to intermediate resources along a chain of commands until goods are distributed to customers. In an economic system, this client/supplier relationship is necessary, and can’t be compatible with a network without a hierarchical structure and where power is distributed among members.
Issues of law, regulation and litigation management lead to many questions. The information stored in blocks is immutable, therefore not contestable, but potentially prejudicial. If any harm is created, why is it impossible to modify information stored in the blocks ?

Performance Issues

In its current form, blockchain technology is complicated to use. Users must know the mechanism of public keys and private keys. They must also know how the network works, a network more complicated than the traditional Internet.

Several questions were raised about the speed of execution of orders. The IT resources needed to run the system are important. This increases delays to process information.

CONCLUSION

Blockchain is a technology that currently involves very large companies. Ongoing projects are experimental and whose results will dictate the line to be given on the evolution and adoption of this technology. If the results of these tests prove conclusive, the technology is destined for rapid expansion within industries. If they are negative, these projects will have increased knowledge on the subject. Also, results could have significant impacts on business competitiveness.

Five recommendations or conditions for success:

Wait for results of experimental projects

Due to the experimental nature of the technology, it is advisable to wait for the results obtained by large companies before beginning the implementation of a blockchain project.

Document the benefits and advantages

Blockchain is characterized by the possibility of issuing intelligent contracts on the network. That is something that can be done also with client / server network type. On the other hand, other technologies must also be studied, such as the Internet of objects. Alternatives solutions deserve to be analysed.

Determine optimal size of network

It would seem there is an optimal size for a Blockchain network. The technology could be more efficient at small scales, for example for supplier networks.  Optimal size of a network appears to be related to its performance.

Secure business relationship

Due to the immutability of information stored in blockchain, it may be advisable to agree on business relationships in formal and legally valid contracts.

Develop a governance model

The viability of a network model without governance is utopian.  System must be assumed by some sort of  hierarchical structure in which commanders can be clearly identified.  The development of a governance model for a particular project remains in an imperative.

 

Louis Bellemare

 

References

1 Note : l’Internet des objets 1 Note: the Internet of Things représente l’extension d’Internet à des choses et à des lieux du monde physique. Represents the extension of the Internet to things and places in the physical world. Le traitement du Big Data trouve un variété d’application dont la météo, les prévisions économiques, les média, les analyses tendancielles et prospective , gestion des risques (commerciaux, assuranciels, industriels, naturels) et dans plusieurs domaines scientifiques. Processing of Big Data is a variety of applications including weather, economic forecasts, the media, trend analysis and forecasting , risk management (commercial, insurance-industrial, natural) and in several scientific fields.

2 Une révolution nommée « chaîne de blocs » (2/2) : le contrat intelligent 2 A revolution called “block chain” (2/2): the smart contract

http://ici.radio-canada.ca/nouvelle/783553/blockchain-contrat-intelligent http://ici.radio-canada.ca/nouvelle/783553/blockchain-contrat-intelligent

3 Realizing the Potential of Blockchain A Multistakeholder Approach to the Stewardship of Blockchain and Cryptocurrencies, Selon les auteurs, il existe des défis de gouvernance à plusieurs niveaux dans le cas d’une chaîne de blocs: au niveau de la plateforme technologique, au niveau des applications et de l’ensemble du système. 3 Realizing the Potential of Blockchain A Multistakeholder Approach to the Stewardship of Blockchain Cryptocurrencies and, according to the authors, there are governance challenges at many levels in the case of a chain of blocks: at the technology platform level Applications and the entire system.

http://www3.weforum.org/docs/WEF_Realizing_Potential_Blockchain.pdf http://www3.weforum.org/docs/WEF_Realizing_Potential_Blockchain.pdf

 

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