Blockchain Technology in the Supply Chain

IT IS the technology which underpins the peer-to-peer, open-sourced, cryptographic currency Bitcoin (and others) and now, finally, it is on the lips of supply chain participants all over the world.When Blockchain first emerged, late in 2008, almost all of the public attention (both positive and negative) was on Bitcoin rather than its underlying technology.

So what is it? To put it simply, it is a secure, decentralised and distributed ledger. Readers should think of the “ledger” as a giant database or record book. The “distributed” part just means that the record book is distributed among many participants, each of whom hold a copy.

Each time a transaction is said to have occurred, the participants each seek to verify the transaction independently, before the transaction can be validly logged by the consensus of the remaining participants (that is, by at least half of the participants). The updated record book, now including the newly validated transaction, is then distributed to all participants, replacing all previous record books.

In reality, this process of verification and validation is achieved via a very sophisticated method of grouping transactions into blocks, hashing and timestamping, akin say to digital notarisation, and algorithmic puzzle solving, but let’s not get bogged down here.

It is sufficient to say, for present purposes, that the cryptographic process of adding new transactions builds on all previous transactions in the chain, in a way which makes the record book truly unique and practically impossible to unwind and rebuild or reverse. Effectively, the record book becomes a permanent (well, at least for as long as the Blockchain exists) and “incorruptible source of truth”. That is why Blockchain is said to be so “secure”.

It is “decentralised” because the platform is not stored in a central location (say, on a server), the access to which is shared by many people. Instead, there are potentially thousands of copies of this shared record book all over the world, stored on home computers and business servers alike. A master version exists nowhere, and everywhere at the same time. It is neither owned nor controlled by anyone, but by everyone that has a copy. In order to “hack” it, fraudsters would need to control more than half of the chain’s participants simultaneously. In the most basic of terms then, each chronological change on this secure, decentralised and distributed ledger is referred to as a “block”. And the larger string of transactions is called a “chain”. Hence, Blockchain.

And who is making use of this technology in the supply chain? Maersk Line, for starters. The world’s largest container shipping line is on a digital transformation drive, and Blockchain appears to be central to its plans.

In conjunction with IBM, Maersk Line is testing (and, at the time of writing, is close to issuing a Beta version for) the management of the paper trail (through digitisation via the Blockchain) across the entire supply chain process. With equal and trustworthy access to the (now) digitised chain, Maersk Line has taken the view that the documentary steps required for, say, the transit of fresh flowers from Kenya to Holland could be significantly reduced, leading to cost savings and efficiency improvements. Maersk Line estimates it can save $2 billion annually by automating the documentation process in this way.

Maersk Line has also partnered with Microsoft, EY and a number of insurers to develop a Blockchain platform specifically for the marine insurance market, to be implemented from January 2018. The platform will be used to capture information regarding identities, shipments, liability and risks and to ensure transparency across the ecosystem, including for clients, brokers and insurers among others, and integrating this information with marine insurance contracts.

In the trade finance space, CBA and Wells Fargo undertook a proof of concept exercise last year to demonstrate the capacity of Blockchain technology, and the Internet of Things, to give effect to an international sale of goods involving bales of cotton moving from Texas to China. The concept mirrored a letter of credit scenario, on a private distributed ledger involving the contracting parties and their respective banks. There was also a real-time, physical supply chain trigger based on the geographic location of the goods in question, for the passing of title and the release of payment.

Although only a proof of concept exercise, it demonstrates an ability for supply chain participants to move away from a focus on documents (as with letters of credit) to a secure, transparent and digitised solution using the Blockchain technology.

In the export sector, CBH Group, the Western Australian grain growers’ cooperative, has collaborated with a Sydney-based start-up in a Blockchain pilot project to provide full supply chain traceability, as well as executing the settlement of commodities by matching title transfer to payment in a single transaction. Needless to say, for Australian producers, being able to demonstrate proof of provenance via a secure platform is a most promising and welcome application of the technology. Finally, in the ports space, the Port of Antwerp has launched a pilot project focussed on logistics automation to streamline terminal operations, by speeding up interactions between port customers (which the Port says involves over 30 different parties, with an average of 200 interactions between them).

By using Blockchain for the transfer of data, there is an obvious efficiency improvement in the elimination of unnecessary intermediaries and interactions (whether by phone, fax or email), along with cost savings in the elimination of paperwork. Assuming the trial proves successful, the port has plans to implement the system by the end of 2017.

These use cases from within the supply chain are by no means exhaustive. It seems every day there is another pilot project launched or announcement made in relation to the testing, adoption or implementation of the Blockchain technology in some novel way. No doubt readers will have noted, however, the representational spread of these use cases. Among the usual technologists and futurists, those pursuing the Blockchain agenda encompass exporters, marine insurers, container shipping lines, port terminals, and the trade finance sector.

Although at this stage there is no defined aggregation of the various projects, it ought to be obvious that each successful test or pilot project takes another bite-sized chunk out of the supply chain and leads to a further understanding and acceptance of the technology. Once that acceptance leads to (more fulsome) adoption, the network effect is likely to take hold within the industry, and it is open to envisage a secure, decentralised, more efficient and (partially) automated supply chain making use of distributed ledger technology.

Credit: DCN/Richard Arrage. Richard Arrage is special counsel at Colin Biggers & Paisley

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