blockchain in the logistics sector
The use of blockchain in the logistics sector offers a clear impact to the profitability of companies in this industry and will be a source of competitive advantage for those companies that can incorporate this technology throughout their organization. Blockchain solves age-old questions of trust, allowing reliability on the outputs of a system without any intermediary or mediating entity. Blockchain technology simplifies and speeds up processes, reduces risks, and increases transparency and trust between parties. Hence, implementing blockchain can decrease costs by speeding up processes while guaranteeing security and transparency of transactions.
Blockchain has the potential to drastically lower costs and increase revenue by addressing critical issues and supporting new growth opportunities. According to one estimate from the World Economic Forum, reducing supply chain barriers to trade could increase global gross domestic product by nearly 5% and global trade by 15%. Potential advantages brought by blockchain technology for logistics operations include an 85% reduction in the cost of documentation and the reduction of the risk of loss theft damage of bills of lading. In addition, blockchain offers new functionalities that can enable high growth, such as an increase in new customers of up to 400% and a potential rise in customer spending of up to 1200%.
Despite all of these benefits, many companies still struggle with making the decision to adopt blockchain and implement the technology. A 2018 report revealed that companies have difficulties understanding the appropriate approach to developing blockchain solutions. Hence, although blockchain has high potential to reduce operational costs, integration requires significant changes in established processes, generating risks and additional costs.
One of the reasons why companies don’t implement blockchain solutions is that they would have to change established processes due to governance issues and the possibility that this new technology could cause harm to existing operations. Another common reason is a lack of understanding of where blockchain technology can be useful, which can lead companies to use blockchain technology with low benefits and create additional complexity.
Additionally, the fact that blockchain is constantly developing necessitates that companies maintain a strong technical team, and this can be a deterrent, particularly for smaller firms that may not be able to absorb this cost.
Building a blockchain solution from scratch may not be the best option for every business. Searching for already developed solutions can reduce the learning curve and fit a company’s needs in a safer, faster, and more controlled environment.
Blockchain technology is one of the most important innovation trends in the logistics sector, as it offers distinct advantages in three important areas of supply chain management: traceability, tracking, and smart contracts.
In addition to major logistics companies such as DHL, FedEx, UPS, and Maersk, corporations in the CPG and F&B, automotive, healthcare & life sciences, and other industries have been investing in blockchain to promote trust and transparency while enhancing their management of complex supply chains.
The following sections highlight examples of commercial solutions in the three crucial areas for logistics operations.
NeuroChain is a France-based company that combines blockchain technology with machine learning. Their platform is designed for traceability and provides supply chain transparency through private or public blockchain networks.
The NeuroChain Tracer allows complete asset visibility for all stakeholders through:
CargoX is a Slovenian startup that developed a blockchain-based solution for containerized ocean freight. The startup focused its efforts on an electronically issued Bill of Lading solution that could be transferred with the help of an ultra-secure and reliable public blockchain network in just a few minutes instead of days or weeks. The chances of loss, theft, or damage to the Bill of Lading have been drastically reduced to almost zero.
In addition, the startup managed to reduce the cost of the documenting process by 85% compared to the estimated normal price for the traditional paper document to be transferred via courier services worldwide, as is the current practice.
dexFreight is a startup focused on increasing efficiency and reducing the cost of road transport in the United States domestic market, as a first phase. The logistics area is not only fragmented, but also has many middlemen with no added value, with huge back-office costs to balance demand and supply. Moving a shipment involves several companies that need transparency and visibility of the origin of documents, milestones, and other activities until the shipment is delivered and settled.
dexFreight uses hybrid cloud and blockchain architecture to manage contracts between the parties. The origin, milestones, reputation, and settlement related to shipment are managed through smart contracts. In 2020, dexFreight registered a 389% increase in the number of new carriers and a 1153% growth in truckload freight spend.
Beyond process efficiency and cost reduction, blockchain allows the exploration of new services and solutions. Most logistics companies recognize the potential of blockchain to make processes more efficient and reduce transaction costs. However, the potential of blockchain technology to produce new solutions with great added value is not yet fully explored (no established blockchain platform is targeting these sectors), as it depends on adaptations to new models of governance and business, along with cooperation between companies. In addition, there is the opportunity to base protocols on large platforms.
We see blockchain technologies offering additional opportunities for logistics companies in the following areas:
This excerpt was taken from our Intelligence Brief titled “Blockchain in the automotive & logistics sectors.” The full report can be viewed here.
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