Maersk and IBM today announced a joint venture to deploy a blockchain-based electronic shipping system that will digitize supply chains and track international cargo in real time.
The new platform could save the global shipping industry billions of dollars a year by replacing the current EDI- and paper-based system, which can leave containers in receiving yards for weeks, according to the companies.
Blockchain will enable a single view via a virtual dashboard of all goods and shipping information for all parties involved, from manufacturers and shippers to port authorities and government agencies.
As an immutable, distributed ledger, blockchain technology will also improve security, according to Michael White, former president of Maersk Line in North America and CEO of the new company.
"With blockchain, the improvement in security is significant with the double encryption," White said. "And one of the advantages of blockchain is the immutable record and trust people can have in it. If anything changes in a document..., it's immediately apparent to all."
Blockchain's native immutability as a distributed ledger will also create an automatic audit trail for regulators, something with which the industry has struggled.
Along with paper legal documents, much of the international shipping industry's information has been transmitted via electronic data interchange (EDI) – a 60-year-old technology. But once shipping manifests move to API-based technology on the new platform, shippers and everybody else in the supply chain will have more timely information and improved visibility, White said.
The blockchain technology will employ smart contracts or self-executing workflows determined by the goods being shipped and the authorization they require while in transport.
"The key point is how do you eliminate or minimize delays and how can you shorten the time people are waiting for information or documentation for cargo to move efficiently," White said.
For example, a large export commodity such as avocados shipping from Mombasa, Kenya to the port of Rotterdam in the Netherlands can take as long as 34 days, two weeks of which involve port authorities awaiting shipping information and government document approval.
"The [shipping] documents as they're created have to go from one customs or regulatory agency to another, often by courier on a motorbike. Once they're signed off on, they're put on a courier pouch, sent to destination where the broker presents it to Dutch customs who then has to validate if it's a bonafide, original certificate..., and then, ultimately, it's cleared and delivered," White said.
White cited one avocado shipment that involved 30 port and government officials, and 200 pieces of communications among 100 people. "You can imagine if any one of those documents are delayed, if there are questions around validity, then the shipment will be held up," he added.
While international shipping is a $4 trillion a year industry, and 80% of of the goods are carried on ocean vessels, much of the logistics involved in creating cargo manifests, tracking shipments and even getting sign-offs from customs and other port authorities remains a paper process.
As the cost and size of the world's trading ecosystems continue to grow more complex, the cost of the required trade documentation to process and administer goods shipped globally is expected to reach one-fifth of the actual physical transportation costs.
According to The World Economic Forum, by reducing barriers within the international supply chain through transparent, electronic communications, global trade could increase by nearly 15%, boosting economies and creating jobs.
Over the past 18 months, Denmark-based Maersk has been piloting the blockchain platform with various customers, including DuPont, Dow Chemical, Tetra Pak, Port Houston, Rotterdam Port Community System Portbase, the Customs Administration of the Netherlands and U.S. Customs and Border Protection.
Maersk and IBM's new company must still get regulatory approval, at which time its name will be announced. But the partners expect the new electronic shipping platform to be generally availability in the next three to six months, according to White
The platform was built on IBM's blockchain technology, which is provided through its cloud service. IBM's blockchain is based on the open-source Hyperledger Fabric 1.0 specification created by the Linux Foundation.
"It had to be based on open standards...and a vendor-neutral platform so all other shipping lines using it could be on equal footing," said Ramesh Gopinath, vice president of Blockchain Solutions at IBM. "That's also the reason it's a separate company from Maersk and IBM."
IBM and Maersk have employed other cloud-based open source technologies on the shipping platform, including artificial intelligence, IoT and analytics in order to help companies move and track goods digitally across internal borders. Manufacturers, shipping lines, freight forwarders, port and terminal operators, shippers and customs authorities will all be able to access to the platform's virtual dashboard on a permissioned basis.
To date, 18% of Maersk's global containerized volume has already been entered into the blockchain application, a figure that will increase over time, according to Ramesh Gopinath, vice president of Blockchain Solutions at IBM.
"Port terminals are very interested to try to get information further upstream to understand what shipments are coming in order to determine berth availability and yard congestion to enable the cargo to move more fluidly," Gopinath said.
Unlike bitcoin, which is based on an open blockchain where all participants can see ever data entry, IBM and Maersk's application will be centrally administered or "permissioned." Each participant in the blockchain will have their authority to access data limited by their individual needs, Gopinath said.
With their joint venture, IBM and Maersk will be able to commercialize and scale the electronic shipping service to a broader group of global corporations, many of whom have already expressed interest in the capabilities and are exploring ways to use the new platform. Those companies include Procter and Gamble, which is looking to streamline the complex supply chains it operates; and freight forwarder and logistics firm Agility Logistics, which hopes to provide improved customer services, including customs clearance brokerage.
When initially launched this year, the first two capabilities of the electronic platform will be the digitization of the global supply chain and paperless trade, enabling users to securely submit, validate and approve documents across international or organizational boundaries.
Blockchain-based smart contracts will ensure all required approvals are in place, helping speed up approvals and reducing mistakes.
Upon regulatory clearance, solutions from the joint venture are expected to become available within six months, at which time White said he expects goods manufacturers, shippers, ports and other third parties to participate in adding new capabilities such as invoice dispute resolution.
"There are a lot of track and trade products out there, but they're inconsistent and there are gaps in the information. The need for real-time access to events and documentation is critical," White said. "Having an immutable, shared audit trail is important, but the bigger value is getting access to the information and the documentation when it's needed to prevent cargo from being delayed."