By Pankaj Sachdeva, Vice President, Data Science and Analytics & Managing Director, India Innovation
The last two years have had a dramatic impact on the Shipping industry. The Covid-19 pandemic led to a complete disruption in the global supply chain leading to high-volumes of cancelled orders, unpredicted cargo movements and huge losses. In addition, shipping congestions at multiple ports increased transportation costs due to shipping delays. The absence of real-time information at the ready disposal of shipping companies was one of the primary reasons for losses in recent times.
The shipping industry has been long considered to be ‘behind the curve’ when it comes to technological advancement. Many of the traditional processes followed, even today, are both time-consuming and error prone, and require documents to pass through multiple layers of approvals from customs, tax officials, health authorities, who are often separated by multiple geographic and language barriers. Blockchain or ‘smart shipping’ provides an opportunity to breathe new efficiency into the sector.
Better Manage Shipments
Blockchain has become the central component for the efficient dissemination of information and data across the business world. Adoption of the technology offers the possibility for shipping companies to access to data for tracking orders, accounting, production, managing schedules and shipping in near real time. Blockchain can minimize issues long associated with the Shipping industry to make it more efficient. For example, the world’s largest retailer uses blockchain technology to manage its shipments-related invoice data and payments processes through an automated system with a shared single source of truth across 70 third-party freight carriers globally. The company has been able to improve its supply chain profitability by avoiding costly reconciliation efforts, long payment delays, and invoicing fraud.
Blockchain driven innovations in the supply chain have the potential to deliver tremendous business value for the shipping industry by increasing supply chain transparency, reducing risk, and improving efficiency and overall supply chain management.
Reduce fraud and increase efficiency
Blockchain is a distributed ledger of transactions that are duplicated across the entire network in near real-time to maintain a single source of truth. It has the potential to bring all players including buyer-seller, shipper, carriers on a single encrypted platform. The primary benefits in shipping processes include real-time tracking, shipment data visibility, faster receipts with fewer errors, and reduced costs. Apart from process improvement, Blockchain can help provide additional value such as facilitating, executing smart contracts, and brokering marine insurance.
Blockchain networks can also be used as Smart Contracts. Smart contracts are computer programs that execute within the blockchain network as per the set terms and conditions of existing contracts between various involved parties. The code automates the flow steps as per the agreement and Standard Operating Procedure (SOP) instructions.
Reducing Risk Uncertainty
Blockchain also has potential use cases in reducing the risk uncertainty in marine insurance. Insurers usually do not have access to real-time information regarding the risk attached to any shipment. Blockchain can be used for risk assessment and claim handling by streamlining processes, enabling all parties (insurers, shipping companies) to have access to data, and integrating the required information with insurance contracts. Major Insurance giants are planning to use blockchain to create a 360o secure network across the shipping supply chain that will provide them with a threefold advantage of optimized risk assessment, data-backed and safe underwriting, and finally, enhanced customer experience.
The Indian government has recently started to use blockchain to track domestic trade in a test capacity. It has initiated a pilot Electronic Cargo Tracking System (ECTS) for secure digital documentation (e-bills of lading) as well as for tracking shipping containers .
There are several challenges that prevent Blockchain technology from being implemented across the industry. The most important of which are cost and limited technical training. The success of blockchain will depend on the presence of an end-to-end digital infrastructure with standardization across the supply chain and all stakeholders agreeing with the use of open APIs across data interfaces. If done right, Blockchain can bring in much needed time and cost efficiencies to the Shipping industry.