Streamlining the logistics supply chain with blockchain
The use of blockchain technology to streamline supply chains remains under-invested as most businesses are still in the phase of digitalising processes. However, there has been greater push and demand towards consumer-facing experiences in supply chain management.
The customer-facing downstream supply chain demand is now trickling upwards. This puts pressure on distributors, manufacturers, shippers and other upstream supply chain players to keep up with the demand downstream, with a specific push to make the logistics process efficient and transparent.
Currently, only a small number of upstream supply chain players use blockchain technology to digitise documents needed for the transfer of supply. Distributed Ledger Technologies (dltledgers), which focuses on cross-border trade digitisation, is one of the few companies worldwide that are in this space, advocating for the digitisation of ships and ports.
When the Covid-19 pandemic hit in 2020, the stresses on the system caused by the lack of automation impeded physical trade. Ships could not be loaded or unloaded at ports because the bill of lading — a physical document routed between the carrier, importer, exporter and relevant banks for authorisation and verification purposes — could not be sent across country borders.
The normal mechanisms of operation were thrown out of whack — courier services no longer operated between countries, so the standard mechanisms of finance were not working. That meant companies needed to pay high transaction and demurrage costs at the ports. (Charter companies are usually given three days to load and unload ships before being required to pay demurrage.)
In May last year, dltledgers announced its key role in the trial of an electronic bill of lading (eBL) between two of the world’s busiest international ports: Singapore and Rotterdam. Backed by the Maritime and Port Authority of Singapore, the trial marked a milestone in the transformation of the shipping and maritime sector and the digitisation of the Europe-Far East trade route served by both ports.
Farooq Siddiqi, CEO of dltledgers, tells DigitalEdge Malaysia that over the last two years, the company has seen increased demand from its shipping and logistics clients. “Companies, when getting raw materials or the product itself, want to know if the production of the item caused any environmental issues. Blockchain will be able to carry this information along with the physical goods. The whole ESG [environmental, social and corporate governance] element is becoming increasingly important in procurement and sourcing,” says Farooq.
Since the breakdown of the supply chain owing to the pandemic, companies have been looking for ways to simplify the procurement process. The supply chain has been shortened too as consumers expect items to be delivered in a shorter time.
“Very often, the shipping or logistics documents do not travel with the goods. This is where the streamlining element really comes in as we couple the physical flow with the financial information, which is something logistics companies, ports and shippers have to do to improve and shorten the supply chain,” he says.
He continues: “The information that is carried along with the goods is very important. The traditional shipping/logistics supply chain does not allow the information to be transported manually with the goods. The digitalisation part, therefore, comes in the wake of the fact that every corporation is looking to save costs, reduce its working capital cycle and manage the risk.”
Soham Chokshi, founder and CEO of Shipsy, agrees. “[This is why] Shipsy allows companies to get end-to-end visibility of their shipments while enhancing the customer experience, reducing costs and driving efforts towards sustainability. Currently, about 10% of India’s container trade is tracked using Shipsy’s platform,” says Soham.
The company’s smart logistics management platform also manages the documentation involved in the logistics supply chain. However, there are some documents that still cannot be digitised. The aim, Soham says, is to essentially create a secure and trusted system as the information carried on these documents is crucial for the transaction.
Blockchain is one of the new technologies Shipsy is building into its platform as the supply chain is all about trust. “The whole journey — such as when to make payment, when to release the goods, where to store the items and documentation — relies on trust. Information stored on the blockchain is immutable, which allows for the traceability and accountability of the document itself,” says Soham.
“Another thing that’s important is visibility because payments are released based on the time stamp, for example, when the container reaches the port. Information like dates and times should not be tampered with to ensure everything runs smoothly. As I look into the future, there are some other use cases that come around smart contracts, incorporating the elements of trust, traceability and visibility,” he adds.
Slow adoption of blockchain in upstream activities
The shipping and logistics industry is at the stage where it is still grappling with processes using pen and paper, which hinders the adoption of blockchain and other technologies.
“Without digitisation and automation, you can’t apply new tech and applications. It’s a major investment to digitise and automate processes but this foundation has to be created in order for future applications to be used as well,” says Soham.
“Additionally, to fully utilise and reap the benefits of blockchain, different players along the supply chain need to be involved on a single platform – from the containers to the exporters, trucking companies, customs, freight forwarder, importer, port authorities’ banks, insurance companies and so on. With so many different layers involved in just one shipment, managing the documentation would be difficult.”
He also points out that the challenges for the upstream side of the supply chain differ slightly from those for the downstream consumer-facing side. For upstream players, the focus will be on ensuring they get good freight rates from global shipping companies and that all the documentation for import or export is done accurately and securely.
“Typically, a retailer would import raw materials from around the world, which are then brought to its warehouse, from which they are delivered to the customer as and when orders come in. These inbound shipments and containers are coming in from around the world, so I would want to ensure the best documentation,” says Soham.
“I would want to ensure that I have complete traceability of the goods as well, to know as soon as the container arrives or whether there has been any delay in shipment, so that I can just head to the port and pick up the items as soon as they arrive. [This is where blockchain can help.]”
The downstream challenges are slightly different. Since those companies deal with the end-consumer, the focus is more on delivering real-time tracking of their items.
Soham explains: “Containers sometimes get delayed by a couple of days [such as when] a ship gets stuck somewhere. But with the customer, you cannot delay delivery too long and it has to be on time, every time.
“Also, the number of transactions made on the consumer end is very high and the cost factor becomes increasingly critical to ensure the cost of delivery is optimised. Technology, such as live tracking communication, is typically used for this.
“The demand on the upstream and downstream side is similar. It’s just that it gets to a whole new level when dealing with customers because the expectations are much higher. But I foresee expectations on the upstream side increasing as well because technically, a factory or manufacturer is considered a consumer as well, just that it is higher up the chain.”
Farooq believes that the use of blockchain technology will continue to focus on the sourcing side of the supply chain. He exemplifies: “For example, Walmart’s sourcing is global and cross-border. It may be buying from China, India or Indonesia but its sales are domestic — in the US or Canada — where it faces local shipping and logistics issues that are completely different from global challenges.
“Once it gets the goods into the US, it is more concerned about trade and the fleet logistics of getting the goods into a warehouse, where it can ship interstate and into a main city. Whereas when Walmart is buying goods from China, it will have to think about third- or fourth-party logistics providers, so the complications upstream are very high.”
What lies ahead for global logistics?
With the convergence of global traders in the logistics industry, Farooq foresees global trade happening on digital platforms rather than on a bilateral basis. A lot of business-to-business (B2B) marketplaces will emerge, which will then drive the logistics industry into a new direction.
“For example, in today’s world, if you’re a supplier and I am a buyer and we have a bilateral relationship, we get about six players to ship whatever [the goods]. But in the future, as trade becomes more driven on marketplaces and platforms, a digital version of logistics will be a very big part of it. Logistics players will have to be able to pivot away from the traditional way in which trade happens to a much more platform-related marketplace trade,” he says.
Farooq also expects logistics players to develop data-led businesses as they have a lot of valuable data that can be monetised to create new businesses or used to collaborate with other business partners.
“We’re going to see a shift from logistics companies digitising for efficiency and visibility to digitising for data usage. This strategic shift will come in governments and third-party logistics as well, where more e-commerce marketplaces come into the industry,” he says.
“Think about fulfilment and returns of orders. The ability to fulfil an order or return orders immediately means that the speed of the logistics cycle time will have to be reduced quite dramatically. We’re definitely going to see a lot more technologies embedded into this space, like the Internet of Things.
“The holy grail, for me, is the merger of the financial chain, information chain and physical supply chain. I think people will endeavour to build that model.”