To most people reading this blog, it is an arcane a concept as it is quixotic one, but the blockchain – a mechanism most commonly known for validating crypto currencies – could also have a profound and transformative effect on the freight exchange platforms of tomorrow.

But some in the global collaborative logistics field are already looking to the future. Take DHL and Maersk for instance. Given that the blockchain could, according to Morgan Stanley, generate around USD$500 billion of revenue for the freight transportation sector, both have already begun incorporating blockchain technology into the underlying fabric of their businesses. In America, at state level, governments have also been quick to recognise the potential of the blockchain. Eight states, says Morgan Stanley – including California, Illinois and Arizona – have worked on bills championing the technology in law.[i]

What is the blockchain in freight?

But what is the blockchain?  IBM defines a blockchain as “a shared, distributed ledger that facilitates the process of recording transactions and tracking assets in a business network”. In a recent fifty-page report, entitled ‘Blockchain in Freight Transportation,’ Morgan Stanley adds that “a blockchain must have four fundamental characteristics – immutability, security/automation, transparency and trustless operation”. [ii]

But is the clamour and hype around this “decentralised system” which according to IBM also “prevents data alteration” justified? And can it really revolutionise the freight industry and the highly intricate and complex supply chains that surround it?

One man who has the answers is Professor Chris Speed. Speed, who is head of Design Informatics at the University of Edinburgh, and an expert on cryptocurrencies and blockchain provides a real-world example of how collaborative logistics platforms could one day utilise the technology to deliver efficiency gains, eliminate waste and provide an enhanced security architecture for members.

He says, “While it is important not to over-estimate the efficacy of the technology, if neutral third party blockchain paradigms were created and implemented in the freight sector in the future, there could be several benefits for those who use freight exchange platforms. Why? As the blockchain is a decentralised real-time ledger – which, in theory, all operators would have access to – not only will it guarantee members more transparency, but could also provide unprecedented visibility across freight supply chains. This means that potentially fleet operators, using exchanges in the future, might be able to better identify empty vehicles, containers and better consolidate loads, which could potentially reduce emissions and improve profit margins across the board.”

Combatting theft and fraud…

Speed, who is also the co-editor of next-generation technology journal, Ubiquity, also believes that blockchain could help to minimise cargo theft and fraud, which costs the industry millions of dollars each year, and negatively impacts the entire supply chain.

“Third party blockchain models provide powerful and robust security apparatus when you have complex relations and intermediaries in a highly elaborate supply chain, who cannot necessarily be trusted… As blockchain is a distributed ledger, all the parties involved in the transaction could, providing the contract allows, see what is inside a container or a truck, and then confirm the contents. Secondly, the real-time visibility that blockchains provide could reduce VAT fraud Carousel fraud, as technically, the blockchain would be able to identity, if and when, a consignment had been tampered with, and then alert those involved in the transaction.”

Standardising payments…

But for many, including Morgan Stanley, the real power of blockchains is their ability to standardise payments, by enabling the creation of smart contracts across the supply chain, which could one day nullify waste in the freight sector.

Blockchain technology, thinks Professor Speed, could help eradicate operational inefficiency, which poses a constant challenge for the global freight sector globally annually. Take recent statistics from the New York Shipping Exchange for example. They highlight that over-booking and cancellations cost the ocean going freight sector around USD$23 billion every year[iii], while in study, published by the Institute of Mechanical Engineers found that lorries in the UK account for 150 million wasted miles each year. [iv]

Smart contracts could make for more efficient service delivery…

So how could freight trading platforms which inculcate blockchain technology in their systems, ensure members achieve a leaner service delivery?

Speed explains, “In theory, if collaborative logistics networks or large 3PLs were to use blockchain to create smart contracts between all parties involved in a transaction, then I believe this could help rid the industry of wasteful practices, meaning fewer delays and costs. Why? Because, in theory, the freight exchange platform could insist that members signing up to the network, have to agree to terms that a percentage of the fee be deducted if goods are delivered late. In the future, as these ‘self-executing contracts’ would be able to monitor and track the journey in real-time, they could be automatically activated without the intervention of any of the fleet operator or the customer.”

And with the Blockchain in Trucking Alliance (BITA) expecting “some commercial blockchain applications” to be deployed by operators “in the next 36 months”, Speed believes that it could, in time, present a game-changing opportunity for the freight sector, to lead on and set industry standards. So how could freight exchange platforms with large virtual fleets and their members benefit?

“Theoretically speaking, as there are many more questions than answers surrounding the blockchain in freight right now, collaborative logistics platforms which invest time and money in building and operating their own blockchain could provide greater visibility to their members. How? Because each transaction generates a new block in the chain, and each new block carries not just details of the transaction, but also real-time unalterable data record detailing the maintenance and repair history of the engine, the exhaust, the body and tyres of the vehicle. It might also be possible for members involved in the transaction to verify all elements of compliance including insurance details and work history.”

If then blockchain has the potential to revolutionise the transparency of transactions in the freight sector, to what extent would those 3PLs and freight exchange platforms who choose not to incorporate the technology into their systems find themselves at a commercial disadvantage?

“In January 2017, Mark Carney, the Governor of the Bank of England, suggested that blockchain would underscore some of the Bank’s future… That of course raises questions about decentralisation – which is one of the core principles underpinning the blockchain – as does the emergence of open source applications like MS Azure and IBM Hyperledger… However, even if blockchain technology moves a little more to the centre, it will, I think become an industry Kitemark as it provides added security around each individual transaction. That is not to say that the blockchain is infallible, but the added layer of protection and transparency that it affords all those using it, means that it will one day become an industry norm when transacting…”

[i] Morgan Stanley Research Foundation

Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype

Date: November, 24, 2017

Pages 4, 5 and 14

[ii] Morgan Stanley Research Foundation

Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype

Date: November, 24, 2017

Page 6

[iii] Morgan Stanley Research Foundation

Freight Transportation: Blockchain in Freight Transportation: Early Days Yet but Worth the Hype

Date: November, 24, 2017

Page 32

[iv] UK Freight: In for the long haul

By Philippa Oldham

June, 2016