How Blockchain is Transforming the Shipping Industry
It seems that the effects of the recent pandemic have fuelled use cases and discussions around Blockchain. While the shipping industry is, in general, characterised by information asymmetry and complex procedures that result in expensive transactions, it has undergone significant changes in the last two years. The pandemic may have substantially disrupted the global supply system, resulting in cancelled orders, spontaneous freight movements and substantial losses but, it can be argued, Blockchain technology has the potential to improve and digitalise numerous maritime procedures.
The introduction of Blockchain, the technology underlying Bitcoin and other cryptocurrencies, is an emerging financial technology that uses a decentralised database managed by computers on a peer-to-peer network, rather than a central computer as in traditional databases, to facilitate the process of recording transactions and tracking assets, which are updated and accessed simultaneously across multiple locations in real time. A decentralised system (e.g. Blockchain) helps to address agency and coordination problems by offering flexibility, efficiency and visibility when sharing information. With Blockchain there is no single authority to authorise changes to it and, most importantly, no possibility of anyone changing information in the system. In short, Blockchain provides security, distribution of information and immutability while the whole process requires zero trust.
The shipment of goods by sea necessitates the cooperation of a number of organisations and individuals (shippers, ports, logistics, authorities, rail, carriers, etc.), who are situated all over the world and must overcome geographical and language barriers. The fact that the vast majority of transactions in the shipping sector are paper-based is another factor making shipping transactions a lot more difficult.
When it comes to shipping, Blockchain has the potential to reduce costs for the industry, as it enables real-time access to data for tracking orders, accounting, production, scheduling and shipping. Blockchain, as a single digital ledger, has the ability to improve the shipping industry by solving the problem of collecting, storing and analysing all the data available in shipping databases. Stakeholders can have access to real-time secure data on shipping operations. It can lead to enhanced control of the supply chain and improved administrative efficiency, while assisting with the distribution of real-time information on vessels and reduce shipping delays.
Charterers, ship owners, cargo managers, port authorities, customs agents, and other parties with access to private and public keys could connect, store and exchange data, complete transactions, securely exchange payments and more without having to worry about the paperwork since, through Blockchain, the information is stored in a location that may be viewed by anyone with the necessary access key.
Counter-party risk assessments are also possible now, since everyone has access to all past transactions conducted by each party. As a result of this increased visibility, Blockchain offers a compelling way of connecting consumers, carriers, orders and payments in real time.
Global shipping leader Maersk was one of the victims of a worldwide ransomware assault in 2017, which resulted in computer system disruptions all over the world and cost the company $300 million in lost earnings. Blockchain’s intrinsic features of immutability and transparency can also assist with cybersecurity issues.
Due to the decentralisation of Blockchain technology and its verified and immutable nature, more sectors are adopting it every day. Today, the technology is employed in a variety of industries, as well as in government departments and large corporations.
Maersk and IBM deployed Blockchain in the shipping industry and realised that the transit time of a shipment of packaging materials to a production line in the United States could be halved, saving thousands of dollars. The “TradeLens” project functions as an open and neutral industry platform, underpinned by Blockchain technology, supported by major players across the global shipping industry. It is built on a foundation of its global supply chain ecosystem, comprising shippers, freight forwarders, ports and terminals, ocean carriers, intermodal operators, government authorities, customs brokers and more. The platform promotes the efficient, transparent and secure exchange of information in a single source, with trusted and cross-organisational workflows. The reported result is better risk assessment with fewer processes and barriers, which has led to lower administrative expenses.
Meanwhile, an EU-funded initiative called “SmartLog” recently tested the technology in Estonia’s main cargo port, Muuga Harbour, when 10 sea containers’ journeys were monitored and shared through data points given to the Blockchain database by ten different enterprises.
However, we may infer that Blockchain technology still has some limitations that need to be addressed in order to make it more effective and efficient in the future. The deployment and development of emerging technologies comes at a high price. Its widespread use necessitates a significant amount of processing power, although efforts are already underway for the technology to become more eco-friendly.
Blockchain technology is still considered underdeveloped due to a lack of acceptable standards and laws, making it difficult to deploy worldwide. As a result, further research into Blockchain is required in order to assess its practical usefulness.
The implementation of laws and the introduction of standards are two ways to improve the technology’s appeal.
In 2022, it is obvious that Blockchain technology has the potential to transform the global economy and it has already taken many industries by storm, including finance, insurance, health, property, arts and gaming.
The shipping industry’s existing methods are mainly outdated and unable to meet the demands of today’s global economy. If the industry can apply Blockchain technology on a large enough scale and across enough of the various organisations participating in the business, it will have substantial potential. If done right, Blockchain has the potential to simplify international and worldwide shipping by bridging information gaps, increasing efficiency, and lowering costs. However, the advantages appear to be speaking for themselves thus far.
Vasilis Charalambous is a Lawyer at George Z. Georgiou & Associates LLC and the Head of GZGTech. He is the Vice President of the Technology Committee of the Cyprus Bar Association, as well as a Member of the International Association for Trusted Blockchain Applications, the European Association of Data Protection Professionals and the Tech London Advocates-Blockchain Legal and Regulatory Group. He has particular expertise in advising public and private sector clients on emerging technology and personal data issues including Blockchain, Crypto-assets and Distributed ledger technology. The GZGTech team advises on legal matters relating to Fintech, Regtech, Insurtech, Healthtech, Proptech, Distributed ledger technologies, Internet of Things, Information technology, Machine learning, Electronic commerce, Blockchain, Crypto-assets, Artificial Intelligence, Software, app and website development agreements.