Canada: Blockchain: Just Because It's A Buzzword Doesn't Mean It's Not The Future Of The Supply Chain

On November 26, 2018, an E. coli scare that authorities suspect originated with the contamination of a few heads of lettuce on one farm in California led to the recall of romaine lettuce throughout Canada and the United States. As with all such preventive measures, the recall was carried out in order to protect consumers from products that may be harmful to them. Also common to most recalls is that authorities and industry stakeholders find it difficult to trace the origins of contaminants or defects. But what if it were possible to trace the exact path of each shipment of lettuce and remove from the marketplace only those products that could reasonably have been affected?

In fact, this is already possible with a tool called blockchain. Blockchain is, of course, a word used by many who don't understand what it is. The aim of this article is to allow you to become one of the people who does understand what it is: a way of storing data in a shared, synchronized and unchangeable way that can guarantee trust and traceability in any system. In this article, part 1 of our analysis of blockchain as it relates to the transportation and logistics industry, we will look at blockchain's application to the supply chain as regards standardization and traceability. Part 2 of our blockchain series will be published in two weeks and represents a close-up look at the application of blockchain to transportation and logistics contracts.

What is Blockchain?

Blockchain is essentially a way of storing information. It uses a "distributed ledger," which is a database that is shared and synchronized across a network of individual computers. Blockchain consists of an immutable distributed ledger that is stored on a network of nodes – individual computers on which the blockchain is downloaded. The ledger contains "blocks" which are digital pieces of information that record transactions. Each block is part of a larger chain of blocks that are grouped together. By being chained together, the blocks containing the information create a shared record of all transactions. This record is accessible to every single node (every computer used by every stakeholder), and is not controlled by a single stakeholder, rendering it incorruptible as the information cannot be edited. Together, the different nodes create a network responsible for storing, updating and validating the information detailed in the blockchain.

Blockchain can serve in many different industries, the best-known of which are being cryptocurrencies such as Bitcoin. While an example of blockchain technology, Bitcoin is, however, far from being its sole application. For example, smart contracts are an emerging use case for blockchain and can be utilized in the transport industry – this will be our focus in next week's article. In fact, the principles of decentralization, incorruptibility and transparency make blockchain an attractive solution to many of the challenges that face the transportation and logistics industry.

Blockchain and Standardization

Implementing blockchain technology across an entire industry does present difficulties. The premise on which blockchain rests is that all stakeholders in a given network participate in the shared framework and disclose information. Blockchain use cases can, therefore, only be effective – and profitable – if businesses trust the proposed platform and provide their own data.

Once that trust is established between various stakeholders and the blockchain system itself, the data provided must then be standardized. Standardization is the focus of the Blockchain In Transport Alliance (BiTA), the world's largest commercial blockchain alliance that brings together nearly 500 members. BiTA aims to develop industry-wide standards across the freight, transportation, logistics and affiliated industries and to encourage the use and adoption of new blockchain solutions.

One such standard is BiTA's Tracking Data Framework Profile, which is designed "to provide adequate information to quickly determine the location of a shipment and to see how it is progressing through its planned route and operational processes until it reaches its final delivery destination."1 BiTA is also currently working on a Location Component Specification, which is "a data structure used whenever a geographic location needs to be recorded on the Blockchain."2

Blockchain and the Supply Chain

From the producer to the final consumer, every actor in a supply chain would benefit from the visibility and traceability that can result from the combination of blockchain technology and Internet of Things (IoT)3 devices. These devices can be attached to products that are moving through a supply chain. Not only can IoT devices monitor a product's location, they can also identify its origin and the stakeholders' premises it passes through.

A specific use case for this type of platform would be the detection of fraud and code-of-conduct violations along the supply chain, thus reducing reputational risk.4 Indeed, most fraud breaches occur because companies lack a clear end-to-end overview of their supply chains. A blockchain ledger would provide a reliable overview of each supply chain and could help identify potential breaches, whether they are the result of conduct by a producer during loading, or rather during transportation or during delivery, thus allowing parties to accurately allocate liability along the supply chain. Such a platform could also improve order tracking and authentication, allowing for more efficient deliveries at a time when same-day delivery is increasingly being demanded.5

Blockchain Applied to Refrigerated Transportation and Storage

Blockchain-enabled refrigeration containers could prevent temperature-sensitive products from experiencing temperature deviations during transportation. Equipped with IoT sensors, some containers already offer real-time monitoring of the temperature and humidity levels to which the products are exposed. This ensures that products are maintained in good condition and allows for immediate interventions as soon as breaches occur, significantly reducing the risk of product loss. Without blockchain, such real-time monitoring may allow one party to demonstrate diligence to a regulator, or represent to a customer that it has taken measures to ensure compliance with food safety standards and with the customer's directives. With blockchain, however, real-time refrigeration monitoring is also instantly shared, and trusted, by all parties involved in the transportation and warehousing of refrigerated goods.

Uses for this application would include pharmaceutical products requiring a specific temperature range during transportation. Currently, these products are tracked independently throughout manufacturing, packing and transit. Implementing blockchain technology in this industry would result in end-to-end visibility that would cover not only these different phases of a product's transportation, but also the intervals between them.6

Blockchain and Trucking

The level of transparency that comes with blockchain could be used to bridge load allocation gaps in the trucking industry. With 90% of companies operating six or fewer vehicles,7 the trucking industry as a whole contains inefficiencies resulting from difficulty in matching the needs of shippers with the availability of carriers. Blockchain could assist in reducing such inefficiencies by offering secure networks on which all parties could collaborate. For example, carriers could be connected to a blockchain network through which they solicit freight from shippers.[8] As soon as the carrier's truck becomes available, the network matches it to the shipper's load. By sharing a blockchain ledger, both shipper and carrier would have access to every transaction and event that involves a specific load. The transparency and traceability of blockchain could thus facilitate the coordination between shipper, carrier, and consignee. This could significantly increase the trucking industry's efficiency by reducing the distance travelled with partially empty truckloads as well as cutting administration costs. There would no longer be a need for the various entities along the trucking chain to communicate amongst one another, since each of them would be able to access secured information through the ledger. The resulting reduction in costs would not only benefit trucking companies by allowing them to better utilize their resources, it would also lead to lower shipping costs for consumers.

While such a macro-level blockchain network for shippers, broker/intermediaries and carriers is not likely to be developed in the near future, individual shippers, carriers, and especially freight brokers and intermediaries could benefit immediately from such efficiency, for instance when setting up complex less-than-truckload (LTL) networks.

What Blockchain Means For You

Though blockchain is a promising solution to many challenges experienced by the transportation and logistics industry, to reach its full potential any implementation of this technology must be based on complete transparency. In a commercial context where actors have diverging interests and are used to keeping information confidential, the extent to which they will be willing to share information, and the extent to which the pressures of public opinion and social media hasten its arrival in the marketplace, may be deciding factors in the scope of blockchain's application to the supply chain.

Footnotes

1       "BiTAs Tracking Data Framework Profile", BiTA, February 27, 2019, page vii.

2       "Location Component Specification", BiTa, February 27, 2019, page 9.

3       The Internet of Things is the interconnection that exists between certain common objects and the Internet, allowing for a constant communication of data between different objects. Well-known examples include Alexa, Google Home or even smart phones. It is estimated that by 2020, more than 20 billion objects will be interconnected in this way.

4       "Continuous interconnected supply chain: Using Blockchain & Internet-of-Things in supply chain traceability". Deloitte, 2017.

5       "How blockchain is revolutionizing the world of transportation and logistics", Winnesota Regional Transportation.

6       "Technology is crucial for bringing transparency to cold supply chains", BiTA, February 26, 2019.

7      "Industry Data", American Trucking Associations.

8       "How blockchain could affect the transportation industry", ISAAC Instruments, August 28, 2018.

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