November Issue: Blockchain in the logistics sector
The very concept of blockchain first came to life when Satoshi Nakamoto, the elusive and so far unidentified creator of bitcoin, created a “purely peer-to-peer version of electronic cash”, as he put it in a paper published in 2008. To work as cash, bitcoin had to be able to change hands without being diverted into the wrong account and to be incapable of being spent twice by the same person.
Iqbal Alikhan, program director, Blockchain & Innovations at IBM explains: “According to Stanford University’s whitepaper, estimates of disruption and lack of visibility in the supply chain are around $300bn globally. To achieve a better rate of speed and agility, companies face pressure to improve demand forecasting, reduce transportation costs, reduce out-of-stocks, and ensure high levels of customer satisfaction. This approach can only be accomplished by collaboration between all parties. However, in traditional supply chains, data about these transactions is still paper-based or uses tools such as Excel, e-mail or keying in on specialised portals. They often need to be reconciled because of different versions being shared by various parties at different points in time.”
This is where the concept of a shared ledger comes into play.
As explained by The Economist, this distributed ledger (or blockchain) is replicated on thousands of computers, referred to as nodes, around the world and is publicly available. It is open for everyone to see, and yet it is also trustworthy and secure. This is guaranteed by the mixture of calculated intricacy and computational power built into its ‘consensus mechanism’—the process by which the nodes agree on how to update the blockchain in the light of bitcoin transfers from one person to another.
Most of the data in the blockchain are about bitcoin. But they do not have to be. As The Economist clarifies, Nakamoto built an open platform: a distributed system whose workings are open to examination and elaboration. The paragon of such platforms is the Internet itself; other examples include operating systems like Android or Windows. Applications that depend on basic features of the blockchain can thus be developed without asking anybody for permission or paying anyone for the privilege.
Since its grand entrance, blockchain technology has had an impact on several industries. Alikhan says: “The future of blockchain looks very promising with commercial solutions rapidly being developed and deployed across the global banking and financial industries, at a pace that is dramatically faster than initially expected. At IBM, we believe that blockchain will do for business what the Internet did for information.”
IBM is working closely with the Smart Dubai office to create a paperless, blockchain-powered government by 2020, as announced by HH Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai.
Joe Pindar, director of strategy, identity and data protection at Gemalto, remarks: “We are consistently seeing more and more use cases around supply-chain optimisation in numerous verticals like the pharmaceutical, agriculture, and food industry. Blockchain fits well here, because it addresses the four qualifying questions that are often answered ‘yes’ in supply-chain operations: Are there more than three parties involved? Is there an established business process? Is it important that the data being exchanged is trusted? Would automation improve the process? Being able to have an end-to-end supply chain run on blockchain brings efficiency, cost-savings, and transparency.”
Financial technology was the first to start adopting blockchain, but it has slowly crept into the ever-changing, ever-adapting world of logistics.
Ahmed Helmy, director of advanced solution architect, international markets at Avaya International says: “Significant rise of cryptocurrencies has already began affecting the industry. One example is the formation of Blockchain in Trucking Alliance (BiTA). The alliance, aimed at developing standards and methods of blockchain implementation for the freight industry, owed their launch to cryptocurrencies’ proven abilities to solve some of the industry’s most pressing concerns around payments and transparency.
“Blockchain applications are now pegged to be used in tomorrow’s industry solutions, driven by today’s need to transfer real-time data into actionable insight, to compete both locally and on a global scale.”
Towards the end of 2016, the Port of Rotterdam (PoRint), Europe’s largest shipping port, took part in a blockchain consortium focusing on logistics. The project involved more than fifteen public and private sector companies based in the Netherlands, coming together to design and develop applications for blockchain technology in the logistics sector. According to the founders, their blockchain project will stand out from the rest because of its scale in the logistics chain. In more recent news, PoRint established a research lab dedicated to blockchain, called ‘BlockLab’, to investigate blockchain’s potential in organising port logistics and cargo flows more efficiently, besides studying the technology’s role in another sectors as well, such as energy.
Ali Merji, research director at Gartner Industry Advisory Services – banking and investment says: “Most supply chain management (SCM) related blockchain initiatives globally are nascent, with solutions in early stages of development. However, SCM is a ripe territory for blockchain concepts because of the distributed, multi-enterprise nature of complex global value chains that routinely conduct business between multiple parties.”
In August 2017, Marine Transport International (MTI), in conjunction with Agility Sciences, released a whitepaper detailing the deployment of their ‘container streams system’ in a supply chain environment. The project, which has connected supplier, shipper, load point, customs, and terminal on a shared blockchain ledger, has far reaching consequences for the logistics industry as it seeks new ways to improve security and profitability. All parties involved in the supply chain would benefit from automated data flows, as the system allows complete interoperability of data sources, even including legacy systems.
Merji explains: “Currently, costly and burdensome overheads are built into certain processes, such as trade finance and product traceability, to ensure the integrity of transactions. Blockchain technologies offers promising opportunities to address those issues.”
So how big is blockchain technology currently?
Helmy clarifies: “Regional leaders are currently assessing the use of blockchain for use within their operations, yet understand that blockchain technology is still nascent. The actual deployment of this technology is complex in nature and requires a multitude of different technology skillsets.”
Alikhan adds: “According to recent studies, 15% of banks and 14% of financial institutions that were surveyed by IBM intend to implement full-scale, commercial blockchain solutions in 2017. Mass adoption isn’t that far behind, with roughly 65% of banks expecting to have blockchain solutions in production in the next few years.”
One of the key advantages of blockchain is that it is much more secure than traditional IT solutions. A relatively recent trend in logistics is fictitious pickups. These occur when frauds show up at a shipper’s dock, provide fabricated insurance documents, DOT numbers for trucks, and pickup documentation. It is argued that blockchain could help prevent these kinds of thefts.
Merji argues: “Blockchain is not immune to cyber-attacks or fraud. Initial blockchain deployments such as bitcoin have proven to be quite resilient. However, the burden of security has moved from the network to the endpoints that are writing to the blockchain. Most recent attacks demonstrate how attackers search for vulnerabilities in ancillary system components, such as operating systems, networking protocols, and some security-related areas—key management, protection, and distribution.”
Helmy agrees. He says: “The immutability of blockchain data and the use of cryptographic algorithms that mathematically hash the data or information that is stored onto the blockchain offers a more resounding security benefit. Yet security concerns remain, as long as bad actors continue to exploit design or programming errors.”
Pindar adds: “Blockchain is a decentralised approach but it doesn’t implicitly mean secure. It provides efficiency but needs security mechanisms especially in the enterprise space.”
Dubai is known for being the trailblazer when it comes to technological innovation. In February 2016, Dubai announced the Global Blockchain Council consisting of a wide range of members, including government entities, leading UAE-based banks, blockchain technology firms, and international companies such as IBM. This announcement was followed by the creation of Dubai Future Accelerators, a program that ‘brings together the best companies, entrepreneurs and government entities, who understand global challenges and invest in breakthrough technologies’.
Following Sheikh Hamdan’s Dubai Blockchain Strategy announcement in October 2016 as a part of Smart Dubai’s initiatives, the Dubai Government is recognising blockchain as the next step in digital transformation of the public and private sector. During GITEX 2017, the Dubai Land Department (DLD) announced plans to become the world’s first government entity to adopt blockchain technology. This will include creating a secure database that records all real estate contracts, including lease registrations, and links them with the Dubai Electricity and Water Authority (DEWA), the telecommunications system, and various property-related bills.
Dubai will be pioneering the application of new technology for cities, and sharing it with the world. When successful, Dubai will be the first blockchain powered government, driving the future economy.