2021: How blockchain technology will Improve logistics and e-commerce in general

Modern supply chains are often complex systems. Companies have many suppliers, and suppliers have networks of their own suppliers.

Many supply chains have become global, which has brought additional complexities to management. They are related to the remoteness of the delivery regions and the time difference, as well as the difference in the business approaches and standards of the suppliers.

What else complicates the delivery process:

• simplify the process of consumption through the spread of the Internet;
• customization of production and consumption;
• increasing the consumer’s demand for delivery speed;
• reducing the life cycle of products on the market due to the high speed of technology change;
• an increase in the number of participants in the supply chain, primarily manufacturers and logistics intermediaries (transport, procurement, warehouse, etc.).

The above-mentioned factors determine several requirements to supply chains. They must be reliable, flexible, sustainable. All processes must happen quickly and be transparent.

What does this mean for logistics companies?

Logistics companies are faced with the challenges of:

• optimizing the maintenance of an increasing number of delivery operations (transactions);
• reduce delivery costs, especially on the so-called last mile-from the retailer’s warehouse to the end-user;
• maintenance and processing of multi-product stocks in warehouses;
• ensuring the regularity and reliability of product deliveries to assembly plants;
• waste recycling;
• replacement of products, etc.
• [electronic signatures assure transactions of intangible digital goods are protected separate from the digital goods themselves (so you can always track and verify a document, NDA, and so on). You can get more information from mSign.]

The increase in the number of supply chain participants and operations has led to an increased need for document exchange. So three problems have arisen:

1. A lot of resources are spent printing, storing, and transferring, as well as archiving, protecting, and destroying paper documents and confirming their legal validity.
2. Filling out large numbers of documents manually leads to errors and time delays, as well as irrational staffing costs.
3. To exchange electronic documents, supply chain participants must have integrated management systems. Besides, transferring data through different operators creates risks of data leakage or corruption.

Using blockchain-based systems will help solve all these problems.

Blockchain as a remedy

Blockchain is a continuous, sequential chain of blocks containing information. It is a type of distributed ledger, a networked technology for storing information.

Key features of the technology:

1. Digital data can be used simultaneously by all members of the network.
2. The geographic distribution of equivalent copies of the data around the world reduces to zero the risk of data loss. For example due to the destruction of storage infrastructure.
3. The lack of a central administrator and the fact that the data is encrypted makes it impossible to replace it without the knowledge of all network participants.
4. The immutability of the data after it has been written to the blocks increases its credibility. This is important for legal purposes.

Thus, blockchain development allows for reliable storage of information about the movement of goods along the supply chain and events occurring with them. As well as a legally significant confirmation of the completed transactions (transfer of ownership and/or risks).

The second uses smart contracts. It is a computer algorithm the goal of which is to generate, control, and provide information about the ownership of something. Smart contracts reduce the transaction costs in the supply chain that go with the relationship of economic agents. It also reduces the risks of committing errors in documents and increases the speed of their transmission.

Every day millions of contracts are signed in the world just for the transport of goods. Reducing the transaction time by even one minute on a national, regional, or multinational company scale can lead to enormous savings.

Why blockchain isn’t easy to implement

The main challenges of implementing projects using blockchain technology are:

• the lack of market power to involve participants in the entire supply chain in the use of technology;
• lack of a single operator that would support the blockchain system, monitor its status, and ensure the integration of new participants;
• the lack of motivation for the participants of the system to take part in the signing of all transactions;
• the need to trust the selected authentication centers of a private blockchain system;
• failure of customs authorities, transport inspection, tax authorities, banks, and law enforcement agencies to accept documents stored using a blockchain-based solution;
• the unwillingness of business to transparency;
• psychological unwillingness to move from the classical organization of business processes to electronic smart contracts. The lack of a clear understanding of the benefits of the technology.

To begin with, it would be reasonable to implement blockchain within a large corporation or at the level of several companies. For example, in existing supply chain management systems (alternatively, in an ERP system).

Benefits of using blockchain technology in supply chains

1. Data is securely protected from theft and change, providing visibility into the movement of goods/cargo in the supply chain.
2. It is much faster to enter into a smart contract than a conventional contract due to its standardization and the existence of an agreed algorithm for execution.
3. The smart contract allows automating the fulfillment of contractual obligations due to the algorithm of operations embedded in it. For example the payment after the goods acceptance confirmation.
4. Transactions are non-refundable, eliminating the possibility of supply chain fraud.

Disadvantages of using blockchain technology in supply chains

1. The need to involve multiple supply chain participants in a blockchain-based system. Its integration with other applications to achieve economic impact makes implementation costly.
2. The benefits of smart contracts are only evident in a high-flow, single-type contract environment.
3. All participants in the supply chain must have access to the execution tools of a smart contract: electronic digital signature, execution database. The execution environment must be decentralized.
4. There can be congestion in the system, depending on platform choice, when multiple transactions occur simultaneously.

How companies are already using blockchain

Traceability of goods in supply chains

Walmart uses blockchain to trace mangoes, pork, and greens from the farm to the store shelf. With blockchain, it takes two seconds, whereas without blockchain it takes more than six days. Going forward, the largest chain retailer in North America plans to move its entire food supply chain to the Food Trust blockchain, developed by IBM.

Unilever uses Provenance blockchain to manage its tea supply chain. More than 10,000 farmers, banks, retailers, and transportation companies are participating in the project.

Nestle is using the Food Trust blockchain to manage the supply chain of food ingredients, such as mashed potatoes, milk, and palm oil. So, the company wants to show customers what their products are made of.

SkyCell has developed shipping containers for medical shipments that require strict temperature regimes. Containers have IoT sensors connected to a blockchain in the cloud.

Organizing shipments and simplifying paperwork

The largest maritime carrier Maersk, together with IBM, has launched the TradeLens logistics system based on the Hyperledger Fabric blockchain. Their purpose is to track shipping freight traffic and the exchange of customs and financial information between participants in the supply chain.

GSBN is implementing a similar project — a direct competitor of Maersk with a comparable market share.

Invoicing and payment in the supply chain

Tally sticks have created a blockchain platform that can process invoices and payments in real-time. This potentially allows it to become the underlying platform for the over $1 trillion invoice factoring industry.

Blockshipping is building a global container platform to manage operational payments between supply chain participants as well as real-time container tracking.

Project Trade (a joint project between HSBC, Deutsche Bank, Nordea, KBC, Natixis, Rabobank, UniCredit, Santander, and Societe Generale) has built partnerships with TradeLens and Tradeshift to digitize the document flow of shipping cargo and offer comprehensive services to global trade process participants.

Visa has launched a blockchain-based payment service, B2B Connect. With this solution, banks and other organizations will be able to identify counterparties and financial transactions within seconds instead of two to five days.

Summing up

The general rule when using blockchain is similar to any business innovation – don’t adopt the technology just because it’s trendy right now. The effect of the implementation should be obvious and quantifiable.

It makes sense to use blockchain for the traceability of products and components, to simplify the flow of documents in large systems within large corporations or specific industries. The effect can also be significant in transportation. Especially when integrating blockchain-based systems with payment services.

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