Making Sense of Blockchain in Logistics & Supply Chain

Blockchain is now emerging as a possible solution to many of the challenges faced by global supply chains. From improving efficiency through reduced paperwork and process automation to increasing transparency and traceability of daily operations, blockchain indeed has many potential advantages in the logistics space. While that is the case, many of us – including professionals – are still struggling to make out if, and how, this technology can serve the needs of different organizations in the industry.

In the latest episode of our “Unpacking E-Commerce Logistics” series, we sat down with Wolfgang Lehmacher, a global thought leader and practitioner in supply chain and logistics, to understand how blockchain works in logistics and supply chain. What exactly is blockchain technology and what are their real and practical implications for supply chain leaders? Let’s find out!

Defining Blockchain Technology

Blockchain, in the broadest sense, refers to “a distributed, immutable ledger technology that can record transactions between parties in a secure and permanent way”. Wolfgang, on the other hand, defines it simply as an endless database consisting of immutable records built in a chain. Since the data is distributed across multiple nodes or computers, if one wishes to modify any one component, one must simultaneously hack the systems that are part of the network. 

According to Wolfgang, the idea behind blockchain is to cut out the middleman and still have a secure and democratic community of actors that can transact with each other on the basis of trust; they know that the records cannot be counterfeited, manipulated or duplicated. Moreover, blockchain does not usually come in isolation; it is frequently packaged with other advanced technologies. Artificial intelligence and the Internet of Things (IoT), for instance, are just some of the more commonly known ones that come bundled with blockchain applications and solutions.

Blockchain’s Applications In The Logistics Industry

Enhance Transparency

Globalization has resulted in a greater demand for transparency in recent years. In fact, many consumers have begun to question the provenance of the product that they purchase and consume. In this case, blockchain technology is able to store product and producer identities with an immutable QR code leading to trusted places that contain all the information about any given product, from the ingredients used to where and when it was produced. Using smart packaging, QR codes (can be created easily using a QR code maker) can also be easily incorporated into the products displayed in stores to help customers make more informed purchase decisions. 

Digitize Your Documents

Next, the use of blockchain-based solutions can reduce risks associated with the digitization process. One of the early developments driven by companies like CargoX was the digitization of the bill of lading (B/L) and production of an electronic bill (eBL). Last year, three shipping lines namely MSC, Hapag-Lloyd and ONE started issuing the eBL based on the blockchain platform of Wave BL. Based on estimates of the Digital Container Shipping Association (DCSA), the maritime industry can potentially save more than $4 billion per year if 50% of eBL adoption is achieved by 2030.

Ensure Compliance

Given its superior security (more so than a conventional database at least), blockchain can also enable trust and improve compliance. During the discussion, Wolfgang brought up the business of diamonds. For items like diamonds that have very specific characteristics, blockchain technology can prove extremely useful. This is because blockchain not only helps to verify provenance and sustainability claims of the diamonds, it also ensures that customers are not purchasing conflict diamonds.

How is Blockchain Transforming The Supply Chain And Logistics?

Firms that deal with transactions and payments are likely to have a blockchain component in their solutions, which adds an extra layer of security and trust. As a result, the blockchain will streamline the entire payment system.

We can see the value of blockchain in the process of digitizing the classic letter of credit (LC) which is an expensive and time-consuming trade finance instrument. So, trade finance is frequently out of reach for many micro and small firms. Digital instruments can help banks to assess their risk. Furthermore, it takes about one or two weeks to process a letter of credit. But now this can be brought down to about five or four hours which is a major gain. Also, we will no longer need to send paper documents around anymore, as the LC is processed on blockchain-based platforms.

A smart contract is yet another unique feature of blockchain technology; it is a piece of software that is activated by particular triggers, for example signals transmitted by IoT devices attached to a container or the products themselves. The smart contract may then arrange payment without human interference when predefined parameters are satisfied, such as when the merchandise crosses the equator and the IoT devices transmit that information to the platform.

For the full discussion, check out the video below. You wouldn’t want to miss it! 

About Wolfgang Lehmacher

Wolfgang Lehmacher is a global thought leader and practitioner in supply chain and logistics, with decades of experience in the industry. Previously, he has served as the Head of Supply Chain and Transport Industries for the World Economic Forum, as well as in other large logistics organizations such as La Poste and TNT. On top of his regular contributions to numerous publications, Wolfgang is also a frequent public speaker at various events worldwide, one of them being the Global Leadership Lecture Series at MIT. 

About Unpacking E-Commerce Logistics Series

Unpacking E-Commerce Logistics brings together some of the best experts in the e-commerce logistics and supply chain space to unpack key concepts from a variety of trending topics, ranging from the use of Artificial Intelligence in the industry to embracing hyperlocal delivery in the e-commerce world. An integral part of this series are our 30-minute long Fireside Chats where we ask our thought leaders questions about not just the topic at hand, but also their career paths, challenges they have faced, and even their future plans.

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