Despite representing about 10 percent of GDP, supply chains remain fragmented. Wedded to archaic technology, transportation companies are missing an opportunity to enhance security, build trust in digitized data, and improve logistics management across the value chain.
The great German poet Goethe once proclaimed double-entry bookkeeping to be “one of the finest inventions of the human mind.” Perhaps he would be willing to update his observation in the blockchain era.
While the double ledger allows the merchant to “see the order which prevails throughout his business,” as Goethe put it, the blockchain’s distributed ledger offers much more—an unparalleled level of security and trust in all data recorded between business partners. By making it impossible for contracting parties to fudge the details, the blockchain provides full transparency.
That alone makes this distributed ledger technology an ideal fit for opaque and fragmented sectors like transportation. Modern supply chains are both complex and splintered, which makes it difficult for executives to find any order in their operations. What’s more, uncertainty prevails each time goods pass from one hand to another, engendering inefficiency in the form of paperwork. Without clear and trustworthy data, it’s no surprise that many partnerships end in acrimonious contests over the chain of custody.
Disruption vs. Evolution
It’s not the case that transportation companies haven’t developed their own solutions to these challenges. Yet, when it comes to adopting a completely trustworthy data system, these partial fixes may be part of the problem. After all, a complete resolution would render even advanced approaches obsolete. This challenge positions the blockchain as a disruption, rather than an evolution, in the eyes of many executives.
“The world’s moving towards, ‘it’s great that you can go 500 miles a day—I want to know exactly what time that truck’s going to arrive, because that’s how business operates today.’”
Douglas Waggoner, chairman and CEO of Echo Global Logistics
This is a problem, because experts agree that the transportation and logistics space is in sore need of an upgrade. The World Economic Forum estimates that global gross domestic product (GDP) could increase by almost 5 percent if supply chain barriers to trade were reduced. After all, 20 percent of all containers handled by ports have been empty since 1998, and companies have spent $15B to relocate them. Moreover, transportation executives surveyed by IBM report that it takes an average of 28 days to receive payment after the sale of goods or services. These issues indicate an opening for forward-thinking organizations.
Precision at Work
Luckily, many are waking up to the fact that better data is needed if transportation is to keep up with ever-more challenging customer demands. As Douglas Waggoner of Echo Global Logistics put it, until a few years ago, the industry “really didn’t put our data to work. Most of the analysts that we had either worked in finance and accounting, or they did accounting … we didn’t really have mathematicians.” In an age when companies don’t just want a shipment to come next Wednesday, but need it to arrive next Wednesday at 2 p.m., data can no longer sit idle.
That’s precisely where IBM thinks the blockchain can help. Through integration with other cutting-edge technologies, such as the Internet of Things (IoT), the distributed ledger can digitize paper-based processes as a single trusted source of data. By offering true transparency into the supply chain, it also sheds light on attempts to perpetrate fraud during the shipping process.
Most importantly, the blockchain reduces the three main sources of friction in transportation: imperfect information, inefficient interaction, and the risk of new threats arising. In fact, logistics companies may well benefit from the wave of venture capital firms seeking to disrupt their industry. Nothing inspires change like a strong competitor.
