Blockchain has been hailed as the most disruptive technology in the transport sector since the introduction of the standard shipping container in the 1960s. Back then, a resourceful American by the name of Malcom McLean revolutionised international shipping through the introduction of the standard-size metal boxes, which made shipping affordable, efficient and safe. McLean had to overcome issues with workers’ unions and regulators along the way and convince trucking and shipping companies as well as port operators of his invention’s benefits. Today, we cannot imagine shipping without containers. We believe that in the years ahead, the world will look back to the advent of blockchain technology in the same way.
What is in it for companies and organisations along the supply chain?
Global players such as Maersk, Hyundai and Samsung are driving innovation in applying blockchain to the transport sector and aiming to optimise processes. At the forefront of this innovation are endeavours to abolish the paper documents which international trade still largely relies on. Shipments usually require hundreds of pages of paper documentation that need to be physically delivered to different carriers, customs agencies, banks and port authorities, processing these documents is time-consuming and the risk of loss or fraud is immense.
Maersk and IBM announced an industry-wide collaboration last year, which has grown over the past nine months to include 94 companies and organisations. Under the name TradeLens, this blockchain-enabled platform facilitates collaboration between multiple trading partners by establishing a single shared view of a transaction without compromising details, confidentiality or privacy and using smart contracts to execute transactions. The real-time access to shipping data and documents allows for more efficient interaction between the partners, while also incorporating IoT applications and sensor data such as temperature or container weight control. The project is still in its pilot phase, but examples already demonstrate considerable benefits – for example, TradeLens reduced the transit time of a shipment of packaging materials within the United States by 40 percent, saving thousands of dollars in costs.
Involvement of customs and port authorities
As key participants in the international supply chain, it is significant that customs authorities and port operators are actively taking part in TradeLens. The ports of Rotterdam, Singapore and Hong Kong are members as are the customs authorities of the Netherlands, Saudi Arabia, Singapore, Australia and Peru. Their involvement underlines the magnitude of the technology’s impact.
Further possible use cases
Blockchain enthusiasts see the technology’s potential to support process optimisation or set up new processes or consortia. The growing number of use cases and successful proof-of-concepts in document management, track and trace or multiparty agreements between stakeholders with multiple interests support their belief. Besides the large-scale Maersk/IBM joint venture, there are swathes of smaller projects looking to track trucks or envision a global blockchain-based system of shipping container use where no container would ever travel empty again.
Legal challenges for blockchain
There is some scepticism about how the technology can be implemented in the transport sector within current legal frameworks. People that work within international transport often cite the need for banks and suppliers to receive physical paper documentation to transfer ownership of certain shipments. This is based on the understanding that public international law governing the different modes of international transportation does not necessarily allow for electronic documentation while amending these laws is seen as a major obstacle. However, a number of international conventions and rules have already adopted the principle of functional equivalence that allows digital solutions to replace paper-based instruments like bills of lading, if they fulfil the evidentiary and security requirements. In contrast, other major instruments such as the rules for maritime freight have not been successfully amended for nearly forty years. Instruments that were intended to further develop these rules – including the introduction of digital freight documents – have not yet been ratified by a meaningful number of states.
Can the law keep pace with blockchain technology?
The variety of interests, legal systems, organisations and languages inherent in today's global supply chains, has severely hindered the modernisation of public international law governing transportation. This has driven the sector towards more private law contractual solutions. The evolution of projects such as TradeLens that try to set international standards for the sector, will eventually push nation states to amend international and national laws to reflect these private law solutions, finally bringing transportation into the 21st century.