Blockchain technology has been a hot topic at many industry conferences over the last few years. The technology has been used in the financial sector, and it provides the backbone technology for cryptocurrencies. It also offers promise in transportation and the supply chain.
An industry group, the Blockchain in Transport Alliance, was formed to evaluate the technology and to establish standards for putting blockchain to work. BiTA’s membership represents most of the major players in transportation technology and many large shippers.
“The standards development process is progressing swiftly,” says BiTA President Patrick Duffy. He reports that the group published its first standard – a location data component – in February and is working through data specifications for “party,” “shipment,” and “bill of lading.” Duffy says “BiTA standards development efforts are extending to the review of existing industry standards as well,” and recently the group voted to start working on finance and banking, commodities, and smart contracts.
Despite BiTA’s work and the attention the technology receives, however, there remains a fair amount of confusion about the technology. Here are five things you should know.
1. What is blockchain?
While cryptocurrencies such as Bitcoin use blockchains, that’s not the only use – and people should not confuse the two.
A blockchain is a cloud-based database, or distributed ledger, and a combination of technologies (advanced cryptology and encryption, machine learning, telematics, etc.) that allow transactions between parties via that trusted, shared ledger. Each transaction is coded into a “block,” which becomes part of a chain of blocks. Each block contains an encrypted key that ensures its authenticity. Entries or changes to the chain cannot be made without authorization of all participating members.
The transactions involve the movement of “things” from one entity to another, and the blockchain keeps track of each one.
The key is that the database is “immutable.” An IBM white paper on the subject noted that in traditional transactions, each party keeps their own record (or ledger) of each transaction. That leads to each participant having their “own version of the truth,” instead of one version of the truth that all participants agree is correct.
Hector Hernandez, co-founder dexFreight, a logistics platform and marketplace that uses the technology, says “blockchain is about collaboration, a new business model.”
2. What does that mean for transportation?
The technology offers the potential to vastly improve visibility of cargo at every point along a supply chain, from ordering, to processing, to packaging.
It’s especially beneficial for shippers, who can “see a lot more data with blockchain technology than with traditional technologies such as EDI,” explains Mike Dieter, CIO of 3PL Transplace. “With traditional EDI [electronic data interchange], there is only a limited amount of data being sent – who is shipping to who and load status and location, for instance.” Blockchain, on the other hand, allows much more data to be passed between shipper, carrier, supplier and receiver. It can include data such as who packed a shipment and at what time, which pallet it was placed on, what trailer it went on, and the condition of that load at every point along the way.
“All that information will live in the cloud,” Dieter says. “Right now, a shipper would have to call a carrier to get specific information on a pallet, but in the future, the shipper can get all of that information from the blockchain.”
Vasanth Srinivasan, Trimble’s vice president of Enterprise Architecture, Transportation, agrees with that assessment from the shipper’s standpoint. “EDI is a universal mechanism, but it doesn’t quite accomplish things,” he says. Shippers can get the information they need, but that often comes in different formats, because they use different carriers.
That’s where the blockchain comes in, because of its “strict interface,” Srinivasen says. “If someone wants to send cargo data, there is just one way to do it with the blockchain.”
From a carrier’s perspective, blockchain can solve one of their biggest problems: getting paid in a timely manner. Within a blockchain, a carrier can show it fulfilled all of his requirements and get paid right away.
This can be accomplished using “smart contracts” within a blockchain. Ken Craig, McLeod Software vice president of special projects, notes that smart contracts can be applied in numerous ways across the supply chain and transportation industries, but data standards are key. “From fuel payments to dynamic insurance rates, smart contracts and seamless commerce require the development of adoptable data specifications, and that’s one of the important areas being addressed by the collaborative work at BiTA.”
He adds that smart contracts can be applied in other ways, such as monitoring IOT data for maintenance or cold chain requirements.
Transplace’s Dieter describes a smart contract as “a simple piece of code with a set of business rules.” When all the rules are satisfied, something happens – whether that’s a carrier getting paid, an alert that a refrigerated load is outside of temperature range, or other event.
3. What technology is required for blockchain?
The blockchain itself will be managed in a cloud. Those developing the blockchain will need various types of technology, especially cryptology and machine learning.
“Most of those things will exist within the cloud,” explains Craig Montgomery, senior vice president marketing and business development at ID Systems. “In terms of being able to participate initially, it will depend upon your ability to aggregate your data and get it into the blockchain.” But that won’t require a carrier to buy servers or hire extra IT staff.
“That’s the beauty of blockchain,” he says. “It’s a broad, private, distributed ledger where data is placed. You don’t have to go out and buy new hardware.”
As far as tracking a shipment, Dieter says, “the vendor has to know what data to send, as does the shipper and the carrier. They all have to work together collaboratively about the shipment.”
More important than the technology required is trust. “Everybody has to be able to trust the blockchain,” Montgomery says. “Especially if usual competitors are participating in a blockchain. They must be able to trust that their data will be encrypted and made available only to the those participating in that particular transaction.”
4. How long will it be before we see blockchain in use?
Most of those working on this technology estimate that it will be two to five years before commercialized blockchains are deployed in transportation. Currently there are trials under way involving some major shippers, and many technology vendors are developing tools for using blockchains within their TMS platforms.
Montgomery says ID Systems has been “looking in and watching – partly because we felt like it was a little early for folks to start talking about blockchain.”
“I still think we’re a good three years out,” Dieter says. Coming back to the trust issue, he predicts that once one or more “trusted parties developed a general ledger, you’ll see more people want to get involved.”
McLeod’s Craig estimates “we are 36-60 months away from seeing meaningful ecosystem-level projects.” Meanwhile, he says, different stakeholders, with different resources, ”will continue their work on development, proof-of-concepts and creating blockchain-enabled projects.”
But after that, it may become quite common. “Within five years, blockchain will be just another technology that is used transparently in the supply chain,” Craig predicts, alongside other emerging technologies such as artificial intelligence and machine learning.
Most observers see the first uses of the technology in highly regulated, high-value operations.
While Montgomery says he believes we are at least 24 months “away before we see commercialization of blockchain in this industry,” the first places will be in pharmaceuticals and the cold chain. “They are sensitive products, valuable products and highly regulated products – those are the three important things.”
Like many things in trucking, it will come down to what shippers want, Dieter notes. “Someone like a Walmart will say, we need X number of carriers to sign up and participate in this blockchain.”
Once that large entity develops a blockchain and asks others to join, that will “light the match.”
5. What’s holding blockchain back?
Trust is a major stumbling block. Dieter says the transportation sector needs one or more “trusted parties” to own and manage a widespread general ledger. Otherwise, you’ll see small, blockchain-enabled applications developed by independent technology providers. But he doesn’t think that entity has emerged yet.
Montgomery agrees to a point. “To keep it simple, you need an independent provider that is trusted to create and oversee the blockchain,” he says. And while there will be no centralized owner, there will have to be someone who runs the consortium. “If you are going to ask all the players to pour data in to a blockchain, it has to be someone they trust.”
But he also sees the need for “an economic model tied to this. I don’t think blockchain will ever get liftoff if it is only turned inward so carriers and logistics companies can optimize their operations.”
Craig agrees with the economic component, noting that many early blockchain adopters “spent a great deal on technology (largely in the financial sector) that returned little to no business value.” But as the hype dies down, the supply chain can focus on “business-driven blockchains” that produce value to all participants.