Blockchain and SCM: what does the future hold?

If you’ve been paying attention to blockchain’s potential role in the supply chain you’ve heard it characterized as a panacea for all, hype that will never provide transparency, and everything in between. It’s hard to know who is right just yet, because the technology itself is new in the space, plus shippers and carriers have a history of slow adoption of new tech.

The one thing that could make blockchain a little different is its potential to reduce costs and risks. As markets tighten and carriers from Hanjin to Alitalia face bankruptcy, everyone is on edge and looking for a major cost savings opportunity.

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To understand blockchain’s potential for being that force of savings, let’s look at a few recent industry announcements, plans, and more.

Understanding blockchain

Blockchain technology is very complex and diverse. Let’s start with a very high-level explanation of the concept behind the technology.

At its core, blockchain is an algorithm plus a data structure that is distributed across a range of devices and systems that allows many different people to see and interact with different pieces of information, the most common of which is cryptocurrencies like Bitcoin.

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The goal is to build a global computer network that no one person completely controls, but that diverse groups facilitate management and access.

For the supply chain, this means blockchain is a method of creating a digital ledger for transactions that is programmed to record every interaction and element of value, from economic transactions to who accessed a shipment, and what manufacturers are producing and adding to the supply chain.

Smart contracts

One chief place experts are looking to add blockchain to the supply chain is in the acceptance and execution of contracts. The technology essentially creates a version of a contract that everyone accepts and can access, but cannot edit.

Blockchain-backed smart contracts for a shipment could track it at every point from manufacturing to final delivery, executing different contractual elements when a step is reached. This would include transferring rights and responsibilities/obligations as goods move, setting terms of payment for delivery, automating that payment, and creating a verifiable audit trail at the end of the process.

What blockchain does is create a safe place to store the contract where everyone can see it and access the information it holds, but no one can change it. So, your systems could automate payment and product acceptance, and your manufacturer could use the contract data to verify shipment information.

Cutting costs during cooperation

An interesting possibility for blockchain’s growth is in the area of new alliances where more companies are making use of the same space and containers on container ships. Blockchain’s distributed ledger could make it easier for everyone to share documentation about what’s on a ship and in each container, easing port as well as carrier burdens.

This also extends past the container itself and can work with the next mode in transport. The Port of Antwerp started a blockchain for container release at the end of June that is designed to cut out middlemen and speed up the processes of transferring objects.

“With our blockchain platform the right truck driver is given clearance to collect a particular container, without any possibility of the process being intercepted. Furthermore our blockchain platform uses a distributed network, so that the transaction can go ahead only if there is consensus among all participating parties,” said Nico Wauters, the CEO of T-Mining.

Building trust is possible

At the heart of most blockchain work in the supply chain is enhancing trust between parties. The distributed ledger technology that builds a shareable record of every transaction and update to an asset creates something every party can audit and understand.

It limits the abilities of bad actors and generally serves to create new levels of visibility in the supply chain.

That’s the goal of the technology. There are some who argue that blockchain can’t do this yet, and that’s true in many cases. Blockchain requires all partners to get on board and to agree on a neutral system or service to handle the contracts.

Like all technology, adoption will guide blockchain success, and we can be sure we’ve only seen the start of something big.