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COMMENTARY: A perfect match

Blockchain and global trade are ideally suited, even in the technology's most basic iteration

By: Matt Tillman
Photo: Enzozo / Shutterstock
   The shipping industry is often criticized for being late to adopt new technology, but history doesn’t support that popular opinion.
   In the 1980s, shipping lines moved to centralized their booking process using state-of-the-art mainframes. In the late 1990s and early 2000s, they encouraged online booking by making investments in a variety of platforms, such as INTTRA, CargoSmart, and others.
   In recent days, after seeing the work of various startups in the space, the most tech-forward carrier announced a partnership to make blockchain in shipping mainstream.
   However, while the technological endeavors of the past 30-plus years created some efficiency gains, Maersk line was still struggling under the weight of their past decisions. Older initiatives had left Maersk with a system of record for each phase in their life similar to rings on a tree.
   And as with many old trees, it started to buckle and limbs were falling. To quote an employee, “We have three databases and our oldest one is inaccessible.”
   Beyond the industry’s database woes, the mechanism by which one interfaces with back-office systems is equally archaic. Developers remember the thick payload SOAP (simple object access protocol) messages over EDI which led to more consulting hours than efficiency.
   This combination of decade-old storage mechanisms, underwhelming processing power, and heavyweight APIs (application programming interfaces) has created an environment inconsistent with the entrepreneurial spirit of their past decisions. Change is needed.
   Blockchain could satisfy a number of these problems. Let’s assume for a minute that blockchain is equivalent to a bank's general ledger but instead of being owned or controlled by a bank, it’s “owned" by everyone.
   Some might find this disconcerting: “But you could see all my purchases! Will everyone see my expensive haircut receipts?”
   They needn't worry. While everyone can see that someone made a transaction, each of the transactions themselves is encrypted, and a unique identifier representing the content of the transaction is constantly checked by every other participant in the network to ensure its authenticity.

Even in the relatively simple manner in which Maersk is using blockchain (as a database with prototype collaboration tools) they will be able to claim significant efficiencies.

   Only the parties who have a mechanism of decrypting the transaction can view its contents, and because transactions can’t be modified, you are ensured that the communication (payment, document, trade, etc.) never leaves the record.
   Trade, and by extension shipping, is a collaborative effort involving many parties: banks, carriers, brokers, etc. Each of these conversations can result in one or more documents such as shipping instructions, the commercial invoice, and bills of lading.
   Maintaining a database, much less a decentralized database of these documents where parties can collaborate effectively, is difficult. Enabling automated actions to occur based on the presence or status of a document such as bill of lading release upon letter of credit payment is even more challenging because the tools to do so are immature. But the blockchain can make that possible.
   There are still some challenges for utilizing this technology in the broader shipping industry. Participants will likely require an amazing user interface to interact with the blockchain system. Another issue is the lack of programmatically addressable supply (the container and the slot). Uber gives drivers phones, trading firms connect to exchanges, and the best shipping has is the GPS tracking devices which require power or distance.
   Even in the relatively simple manner in which Maersk is using blockchain (as a database with prototype collaboration tools) they will be able to claim significant efficiencies. 
   While I find the development exciting, it's worth questing whether these efficiencies aren’t just as obtainable by leveraging the features of a Dropbox pro account. The sharing and storage of files with thoughtful permission schemes is not a new concept.
   Either way, as containers become connected, the possibility of end-to-end electronic clearing will become a reality. This will bring efficiency gains similar to the ones realized by the financial industry when derivative trading became automated.

Editor's note: Tillman suggested mathematically-inclined readers consider arguments about whether blockchain defeats the Two General problem or other permutations of it. "It does not," Tillman said, "but in fact, it’s just close enough to work in practice."

Matt Tillman  Matt Tillman is chief executive of Haven.