Building the case for blockchain

Recent developments, both public and private, indicate blockchain application in supply chain is coming

By: Eric Johnson
Photo: WhiteDragon / Shutterstock
   The way Brigid McDermott sees it, a blockchain isn’t really about cost or efficiency. It’s about trust.
   “The reluctance to change has been about trust,” McDermott, vice president, blockchain business development for IBM, said to the Adam Smith Project on the sidelines of the JOC’s TPM 2017 conference in Long Beach last week. “It’s easier to use digital documents than paper documents. But the lack of a shift has been due to a lack of comfort that this is safe. Blockchain is not about data access, or efficiency. It does all those things, but fundamentally it’s about trust.”
   That’s all the more ironic considering the backbone characteristic of blockchain technology is meant to be trust. Blockchain, as we described in detail in an American Shipper feature in December, is a distributed database that provides multiple parties with an immutable ledger that captures information critical to all or some of those parties.
   The applicability of blockchain to supply chain was almost immediately apparent to those searching for ways to apply this emergent technology toward a revenue-driving models.
   Supply chains involve multiple parties that all depend on the transfer or documents to trigger the meaningful motion of physical goods. So what if there was a way to create an unchangeable platform for critical documents related to pricing and customs clearance?
   Well, the short answer is, that type of solution is coming. It’s been piloted and proved and it seems only a matter of time before documents like bills of lading, letters of credit and customs compliance forms are recorded not on paper, but on blockchain-backed platforms.
   Just this weekend, news filtered out that the ocean carrier Maersk Line and IBM were partnering on a blockchain for cross-border shipments among shippers, freight forwarders, ocean carriers, ports, and customs authorities. The product, based on Linux’s open-sourced Hyperledger platform, is expected to be available later in 2017.
   Meanwhile, the New York Times reported Saturday that Walmart has been piloting blockchain initiatives to better track food safety, also using IBM.
   IBM is one a handful of entities developing blockchain solutions. The Times’ article suggested that developers at IBM were given the greenlight to attack supply chain applications for blockchain, and McDermott said the key now is fine-tuning the pain points in the industries like ocean shipping that such a product can address.

Nobody is going to put in a transformative system unless it impacts the bottom line.

   “I see a huge swell of interest across all the parties in the ecosystem,” she said. “There’s a desire to make the pain go away. There’s a willingness to talk about change and talking about the pain.”
   McDermott later spoke on a blockchain panel at the conference and was the most optimistic about how quickly the shipping industry might adopt blockchain technology. That is, of course, a matter of opinion, given how slow the shipping industry has been to adapt to change.
   “We keep re-visualizing how to transform industries,” she said on the panel. “Nobody is going to put in a transformative system unless it impacts the bottom line. Unless it reduces cost or inefficiency. Transformation has to make business sense. There has to be a belief that what we’re doing can fundamentally change things.”
   She also emphasized the need for blockchain products to be designed for users, not technophiles.
   “So you want to run a blockchain?” she said. “What does that mean? These are not focused at CIOs, these are focused on truckers, ports, shippers to be using them. It has to be usable the same way an app from iTunes is usable. For developers of the systems, there are standards they need. For users, we have to keep this simple.”
   That, of course, is the mighty challenge facing developers of blockchain products. The diversity of parties needed to fully unleash the power of a blockchain means it’s hard to build a standardized product they will all gravitate toward.
   “The number of players is a barrier to digitizing the shipping industry,” Alexander Goulandris, chief executive officer of the essDocs, a company that digitizes trade related documentation. “There are such a huge number of people in the ecosystem. In transitioning to a digital environment, you need to transition banks, shipowners and so many other parties. The question is how do I break this up in bite-sized chunks to make it digestible? Where can I get low-hanging fruit to get ROI? The biggest part of digitization is breaking it down to small blocks.”
   Goulandris, whose company is piloting a couple blockchain projects, described the technology as “a database on steroids.” Proponents have compared its ability to track data as similar to the way the internet enabled parties to communicate in a new, more efficient way.
   “It’s a distributed way to keep record,” said Dave Albert, chief operating officer at Libra, a company that provides management tools for blockchain uses. “It’s a really good record-keeping system. If youire shipping a good from point A to point B, there are so many touchpoints. Every company along that chain is keeping their own book and record. That means 20 entities have 20 different internal databases. But you could have a distributed record instead of 20 books and records of the truth.”
   Of course, it’s not that simple, because there are multiple developers selling multiple products. In other words, little standardization.
   “There will have to be a common set of software that someone uses for a network system, but there’s more than one vendor out there selling this stuff,” he said. “There’s a world of different blockchains, and that’s fine, but we’ll need standards so it’s not all about using one software.”
   Goulandris sees the adoption of blockchain as being driven by individual uses, whether it’s the Korean government mandating that all letters of credit become electronic or Maersk compelling its competitors to join it on the blockchain wagon.

Customs organization could benefit hugely from the development of blockchain-based customs filings, but the inertia inherent in bureaucratic agencies might slow the progress of cross-border blockchain products.

   “It’s possible for big players to change the ways people do business, as long as there is ROI for everyone in the chain,” he said.
   However, in a conversation with the Adam Smith Project, Goulandris said one of the more useful applications of blockchain might also be an impediment. He said customs organization could benefit hugely from the development of blockchain-based customs filings, but that the inertia inherent in bureaucratic agencies might slow the progress of cross-border blockchain products.
   McDermott, however, sees the regulatory applications as among the most important.
   “What we have seen is of definite interest to regulators,” she said. “They see this continuing expansion of the work they need to do to bring folks into compliance. The same is true in financial services. Think about regulators – it puts the information on a block and it cannot be altered. I know this info was the same as what it was a week ago, a year ago, 10 years ago. If you’re applying blockchain properly, you're achieving higher levels of compliance with less cost.”
   McDermott said she’s not surprised there’s not a scalable blockchain for supply chain solution on the market yet, because the technology is really still in its infancy, but that she expects that to change by the end of 2017, with products “I can’t even imagine right now.”
   Arnold expects this “nascent” and “immature” technology will follow the normal adoption curve of other technology. But he hinted that “there are a lot of things going on behind closed doors, that aren’t being made public and that a lot of people don’t know about. Those turn into pilots that turn into production systems.”
   The Times article, for instance, said IBM has 400 clients and 650 employees dedicated to blockchain initiatives, and quoted Mark Russinovich, the head of Microsoft’s blockchain efforts: “We believe with 100 percent certainty that it’s going to matter. It’s a question of where’s its going to matter and how it’s going to matter.”
   Goulandris, meanwhile, said those in the shipping industry should think in terms of blockchains and ecosystems.
   “Blockchain is a tool. You can use the wrong tool for the wrong job. Where it’s useless is when you use it to replace a database. But blockchain is an incredibly valuable tool where you have ecosystems, and in shipping, you have so many ecosystems.”