International trade and logistics together are one of the largest economic sectors
in the world, accounting for over USD 30 trillion annually. 90% of the world cargo
is transported by sea. The significance of the logistics industry and moreover sea
freight is very significant with a 10.3 billion tons per annum in 2016. The logistics
sector is one of the real, physical world areas where blockchain technology can be
applied to improve efficiency and optimize operations. Logistics is a perfect fit for
the blockchain technologies, because logistics is essentially a supply chain of
merchandise, where we have irreversible steps in the supply chain that are
required to progress on to the next step. Furthermore, the blockchain provides
the much needed transparency, security and most importantly trust to all parties
involved in the chain – something that is currently being carried by banks, industry
associations and organizations, etc.
International trade and logistics are very complex nowadays although all
processes are still being carried out the way they were 300 years ago, i.e. on
paper. The title of ownership (Bill of Lading) in the shipping industry is still being
printed on paper and still being sent by courier to the receiving party. The
payments are still being carried out via banks transfers and letters of credit, all
proved to be slow, expensive and take time to clear. New regulations impose
additional checks by US intermediary banks cause further delays. Bank payment
transactions often take 3 to 5 days. All these factors cause losses to the shipping
industry and international trade. Cargoes are delayed, pending for original
documents to be delivered and payments to be received. Each idling day of a ship
could cost as little as USD 10,000 USD and up to USD 150,000 in expenses,
including salaries, port charges, running expenses. Cargo delivery delay penalties
cost millions of dollars per single shipment. Empirical research shows that 17% of
its lifespan cargo ships are idling, waiting for clearance of financial matters,
including financial hold of cargo, freight payment, cargo related documents or
other trade and ship related document. Considering that the global value of sea
freight itself accounts for USD 380 billion per year the delays generated losses are
a billion-dollar figure. That cost is passed on to the clients and to the end users, all
of us. Optimizing the international trade, logistics and sea freight industries will
affect all of us in one way or another.
https://youtu.be/ys0__ZB3uBU
Blockchain technology allows us to introduce smart contracts that will replace
paper documents, provide instant delivery of documents, eliminate the expensive
letters of credit and replace them with blockchain escrow payments.
These 4 points only will reduce delays to under 10% leading to
freight optimization and less cargo delay penalties. Further improvements such
as customs clearance are to be implemented by blockchaining. Pilot customs
services project by blockchain has already started in South Korea.
Other than the delays that account for huge losses each year, there are number of
other problems in the international logistics, that could also be solved through
blockchaining logistics, such as:
Reducing fraud – replacing paper documents with smart contracts that
cannot be forged will improve trust and accountability of the document
flow.
Lowering costs & Increasing trust – using an established blockchain
protocol, such as Ethereum and escrow payments rather than bank letters
of credit will significantly reduce the costs of cargo and freight payments,
while at the same time providing for even higher trust and secure
payments.
Securing information – encryption ensures high security of the
documentation flow, which is otherwise exposed to various parties, such as
bank’s employees, agents, brokers, etc. With a blockchain solution, each
party would have access only to the information that is relevant to them
and will greatly decrease industry scouting for information.
Safe archiving – paper documents fade over time, get lost, burned, flood
and humidity greatly affect them. With blockchain smart contracts the documents
will always be in perfect shape, ready to review and reference and will not be prone
to destruction.
Tracking – tracking cargo shipments is a crucial aspect, especially if the shipment is
split in several parts or is being transported by different modes of transport throughout
the cycle. Furthermore, tracking is crucial in the supply chain of food, where batches
need to be traced back to their origins.
Global transportation platforms, such as CargoCoin are essential for the implementation
of the 21 st century technologies such as the blockchain and smart contracts in global trade
and logistics.