Supply chain

Blockchain and IoT in commercial transportation

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The sustainability of commercial transportation companies depends heavily on their ability to adapt to consumer needs. Investing in new technologies helps increase their operational efficiency and lowers the cost of shipping. In recent years, disruptive technologies — such as the Internet of Things (IoT), augmented reality (AR), virtual reality (VR) and blockchain technology — has emerged as solutions in the world of transportation and logistics. They are filling the gaps of the major inefficiencies that have been plaguing this industry for decades. But, unsurprisingly, blockchain technology has been the most mass adopted technological disruption in the transportation and logistics industry.

For most business owners, blockchain may seem like a buzzword, and its applications might be obscure and difficult to understand. However, fleet management companies are finding blockchain as an effective investment for their company of multidimensional services.

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Commercial transportation: The pros and cons

A recent report shows that every day, the transportation industry has $140 billion tied up in disputes and payments. Additionally, due to over-reliance on paper transactions, processing and administration costs have increased to as high as 20 percent of overall shipping costs. This also leads to slower invoice transfer which ultimately results in a delay in payments.

The report also shows that companies have to wait up to 42 days on an average invoice before receiving payments. This slow transactional time can be costly if quarterly profits are a determining factor in company investments.

Transporters also face issues with the health of cargo during transportation. It is hard for me to digest the statistic that more than 8 percent of sensitive pharmaceutical shipments experience temperature deviations and because of this, those products never make it to their destination.

Blockchain and IoT technologies, combined together, bring two features which will help transporters to make their operations more efficient:

1. Smart BoL

A Bill of Lading (BoL) is a legal contract issued by the carrier of goods. This legal instrument is as old as trade itself and has three main characteristics:

  1. Document of Title of Goods: The possession of the BoL is equal to having the ownership of the referenced goods.
  2. Contract of Carriage (CoC): This states that the carrier will transport the goods in compliance with the commercial contract.
  3. Receipt: This is the evidence of goods the carrier has received confirming the quantity, quality and other information.

Here are some problems with the traditional BoL system:

  • Fraud: The alteration or manipulation of the BoL to hide accountability due to cargo spoilage or other issues.
  • Theft: The BoL is a bearer document of title and anyone who has possession of the BoL has prima facie claim to the goods.
  • Inefficiency: BoLs are issued to three different parties. One is managed by banks which are involved in trade finance, one is couriered to the recipient of the goods, and one is retained by the carrier. Having three original copies of the BoL makes the process complex and the dispatch delivery charges are also high when trading internationally.
  • Physicality: Due to the original BoL only existing in a physical form, the dispatcher has to deliver one of the original documents to the consignee, and odds are that the goods have arrived at the discharge port but the consignee has not yet received the BoL.
  • Amendments: All BoLs have to be sent back to the carrier who destroys them and reissues new ones, followed by the same process of transferring them back to the concerned parties.

If the problem of excessive administration is caused by paper-based documents then let’s remove paper from the process. Digitization can improve administrative efficiency, but there are a few issues with it including file duplication. Blockchain technology eliminates this issue with the ability to create a digital file that cannot be changed or duplicated.

With smart contracts, rights and obligations are automatically executed as soon as all the parties come to an agreement and meet the conditions. Smart BoLs enforce certain conditions in the shipping contract. Enforcement of the terms remains irreversible as the smart BoL is run on every computer in the network. It ensures that the contract can never be intervened to appeal the action. This approach eliminates the nuances of contractual disputes.

Most likely the way smart contracts will be leveraged is not just to trigger payment, but rather an alert for potential breach of contract. Instead of direct financial action, all the concerned parties will be notified if any of the condition related to the cargo doesn’t meet — for example, if the temperature of cargo goods goes above or below specified limits.

2. Real-time cargo monitoring with IoT

IoT has become fundamental in offering complete transparency into the transportation of goods and in the case of implementing smart contracts into the transportation operations, IoT integration becomes a must. Ideally, with the integration of both blockchain and IoT, a Smart BoL is coupled with smart agents. These agents are the connected sensors that are appointed under the BoL terms to monitor some executable terms in the contract.

For example, the executable term can be that the relative humidity (RH) inside the container remains in the range between 40 and 50 percent. A sensor which is mounted inside the trailer monitors the RH and communicates the data to the smart BoL in real-time. If the humidity level goes to an unacceptable level, the BoL is automatically breached and concerned parties are notified at the same time. The smart contract then triggers a payment or force compensation to the aggrieved party. Real-time monitoring of cargo is more effective than appointing an auditor to check compliance. This approach is less prone to corruption and ensures complete transparency into operations.

How IoT and blockchain helps shipping cargo

I have discussed the major features these combined technologies bring together, now here are some of the benefits that can be realized for transportation and logistics operations:

  • Code of conduct violation and fraud detection: To lower the risk, it is necessary to ensure that the code of conduct is respected along the chain. The transparent and accountability features of blockchain technology supports the fraud detection processes.
  • Link between physical activity and information: IoT brings the capability where the data is linked to the materials, products and cargo on all the stages of the supply chain.
  • Continuous information flow: The immutable and irrevocable properties of blockchain technology ensures effective information sharing among the stakeholders involved in the contract.
  • Information accessibility: The seamless connectivity of IoT coupled with blockchains will provide the required access to the information produced along supply chain operations.

Blockchain and IoT: The archetype of the transportation industry

The transportation and logistics industry are undergoing major challenges today and may face many more tomorrow. The demand for real-time transparency and accountability has increased over the past few years as the market for transportation and logistics keeps growing.

Today, blockchain and IoT technologies continue developing and need to be adopted by the transportation and logistics businesses in order to support the challenges they are facing. The future of combining blockchain with IoT would be able to help different stakeholders of, not only the transportation and logistics industry, but other industries as well. Technology providers are coming up with different use cases for every industry, and interest in investing in these technologies is growing.

From time to time, we invite industry thought leaders, academic experts and partners, to share their opinions and insights on current trends in blockchain to the Blockchain Pulse blog. While the opinions in these blog posts are their own, and do not necessarily reflect the views of IBM, this blog strives to welcome all points of view to the conversation.

Learn how industries are revolutionizing business with IBM Blockchain

Chief Executive Officer of Biz4Intellia

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