BLOCKCHAIN TECHNOLOGY IN MARITIME TRADE

Nowadays 90% of freight transport in global trade is managed by the shipping industry, but the transport of goods by sea is extensive and structured, having one of the most substantial bureaucracies.

In fact, the process is slowed down by the complexity and volume of point-to-point communications: providers of land transport services, freight forwarders, customs agents, port management and naval transport are just some of the subjects involved in an international shipment.

In order to do well their job, all these individuals must necessarily know, in a short time, not only a series of logistic information (such as arrival and transit times, the weight and type of goods, the events related to the movement, etc.), but also the various safety or regulatory provisions, and above all the relevant contractual information accompanying the shipment. In this sector, the number of contracts stipulated is enormous: from the simple contract relating to purchase orders, up to sale contract, including commercial invoices, delivery notes, certificates of origin, bills of lading, letters of credit, transport documents, insurance declarations, payment notices etc.

A transport logistic of this size generates a big quantity of documents, especially paper documents, which can reach more than 50% of the cost of the transport. Logistics at the base of maritime transport is very complex as the parties involved are numerous and there are also many interests at stake, often conflicting. Also the different systems used to track shipments are many. Adopting a blockchain-based system would streamline these processes.

Blockchain will help alleviate much of the friction in global trade logistics, and will allow to optimise the costs and time associated with the documentation and administrative processing of trans-oceanic shipments, by streamlining and automating payment.

WHAT IS BLOCKCHAIN?

Blockchain is a digital ledger structured as a chain of blocks containing transactions. Such blocks are linked following a chronological order and their integrity is guaranteed by the use of cryptographic functions.

The information recorded in the blocks is added to a sequential chain, stored simultaneously on different nodes of a P2P network. The main advantages of this technology are the immutability of the ledger, the traceability of transactions and security.

Blockchain represents an ideal solution for logistics as it establishes trust among the various subjects through the decentralised, immutable, secure and easily-accessible common ledger, and does not require an authority that approves operations because the operations themselves, for the way they are made, are self-legitimised.

The system ensures the immutability and transparency of a shared ledger through advanced cryptography techniques.

PORT MANAGEMENT AND TECHNOLOGY INADEQUACY

Each port is a system structured by many autonomous subsets where trains, trucks, vehicles and operators circulate. It is precisely the high number of subjects involved that determines the complexity of port logistics. In fact, due to the differences (in functions and also in interests) of the various subjects involved, this context is very uneven and the inadequacy of the technologies used does not allow overcoming obstacles.

The maritime trade industry is very competitive and fragmented. The situation is complicated by the complexity of supply chains, the lack of transparency and the poor visibility of what happens along the supply chain. Moreover, many documents are still paper-based and consequently it is more difficult to ensure the traceability of shipments. Here comes the innovative solution of blockchain.

The merchant shipping industry has already begun to use the blockchain for traceability, the digitization of port logistics, payments and all the document flow that characterizes this sector. If the documentation is already digital, it is possible to extrapolate metadata, through the use of detection devices. These metadata are necessary to integrate the smart contracts by which the blockchain is made. And once the documents are digitized, you can also automate payments. It is hoped that this system can be implemented in the entire naval trade sector, as the benefits deriving from the application of blockchain technology are manifold.

THE PHENOMENON OF FIRE OF PORTACONTAINER SHIPS

A long series of fires plagued and still plague the maritime transport sector for years. These phenomena are one of the most important security problems in this sector.

According to the American Bureau of Shipping the phenomenon is connected to the size of the ships. Actually, the large dimension of ships is not the only variable of the increase in the incendiary phenomenon.

The causes can be multiple and are often linked to malfunctions of electrical or mechanical equipment, or to the heating of surfaces in contact with combustible materials or to the lack of precaution in the storage of flammable gases and liquids that emit flammable vapours.

Very often the problem of fires is linked to false declaration about the type of load contained within the various containers. The adoption of a blockchain-based system should avoid these false declarations.

THE SUPPY CHAIN

The term supply chain indicates the distribution chain. More precisely, it refers to “a system of organizations, people, activities, information and resources involved in the process of transferring or providing a product or service from the supplier to the Customer”. It is a process that begins from the raw materials, passes through the realization of the finished product and through the management of the warehouse and it ends with the supply of the final product to the Customer.

Professor David Simchi-Levi stated: «Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, so that the goods are produced in the right quantities, in the right places and on the right time so as to minimize overall costs while meeting the requirements in terms of service level».

Within the whole process, which does not concern only logistics, there are various steps and for each one different professional figures are involved. Indeed, the correct management of the distribution chain is a competitive advantage. For this reason, the supply chain, in recent years, has become of crucial importance in the organization of any commercial enterprise. In fact, ever-more companies have a supply chain manager, entrusting him/her with the task of monitoring and improving company performance.

Thanks to blockchain, also companies involved in specific supply chain can have a digital database where transactions and goods’ movements are real-time updated.

The use of blockchain technology, indeed, improve the distribution chain performance. All this comes from the smart contracts performance, data analytics and from the combination of blockchain with other technologies like IoT and cloud computing.

SMART CONTRACTS

Every time a company signs a contract, there is a postponement between delivery times and payment terms, because payments are made after the delivery of goods. Using smart contracts, within the blockchain protocol, it is possible to digitize the contracts stipulated between the companies, simultaneously involving logistics operators and banks.

This allows for automatically sending the proof of receipt of goods, simultaneously with delivery. At the same time, the banking system can issue the invoice. This simultaneity of operations allows a reduction in working capital and simplifies financial transactions. Smart contracts meet the requirement of written form following the computer identification of the interested parties, through a process that observes the requirements set by the Agency for Digital Italy together with the guidelines to be adopted.

BLOCKCHAIN’S BENEFITS IN MARITIME SHIPMENTS

It is clear that thanks to the blockchain it is possible to revolutionize logistics in the merchant shipping sector. All legal documents and information systems involved in the process could give rise to uncertainty, lack of transparency and poor visibility of what happens during the supply process. This problem has in the past gave rise to cases of fraud, corruption, illegal behaviour and various errors.

The advantages of the blockchain in the specific area of maritime shipping are:

  • More trust among the parties;
  • Optimized processes;
  • Greater IT security;
  • Digital homogeneity;
  • Access to industry 4.0 technologies;
  • Compatibility with ERP software;
  • Evolution of insurance products.

Let’s look at them more in details

MORE TRUST AMONG THE PARTIES

Especially in the past the minimum level of reliability was calculated on the basis of personal knowledge and relations with a business partner. Subsequently, the development of e-commerce and the increase in international trade have made basing trade on personal relationships increasingly difficult.

Therefore, today the determining factor is no longer the personal relationship but the existence of intermediaries or guarantors. The support of these figures, intermediaries and guarantors, has a huge cost for companies. In this regard, the blockchain makes it possible reducing delays and costs caused by the use of trust services. Through the chains of blocks it is in fact possible certifying any document or agreement and creating original electronic documents as contracts, providing reliability at a much lower cost. Thanks to the immutable and intrinsically-secure distributed ledger, there is no need for intermediaries to guarantee the information recorded in it. The database, common to all the parties involved, can be easily consulted and verified.

OPTIMISED PROCESSES

The blockchain solves the problem of data replication because, for each information, it creates a unique and non-replicable digital identity. The digitalisation of documentation avoids errors linked to the manual transcription of the information in spreadsheets or private databases, and smart contracts can independently determine, on the basis of set rules, the actions to be taken in the management of a Bill of Lading. This involves an instantaneous circulation of documents and a decrease in loading stops, with a consequent reduction of costs.

GREATER IT SECURITY

The databases and computer systems of the various entities and organisations involved are frequent victims of cyber-attacks. Thanks to blockchain, attackers will no longer be able to make inaccessible, or worse destroy, the database of a shipping company or of a port authority. The distributed ledger is practically impossible to attack. This not only guarantees a greater security, but also reduces the costs associated with the cyber security required to manage all the IT infrastructures.

DIGITAL HOMOGENEITY

Thanks to blockchain, the risk of the non-homogeneity in the digitalisation levels of the various subjects involved is overcome, as well as the various constraints imposed by different countries and by the authorities of the sector. The major blockchain-based applications are built on open standards (open source) and developed and tested in collaboration with the major port and customs authorities.

ACCESS TO INDUSTRY 4.0 TECHNOLOGIES

The technological innovations of last years and their convergence (IoT sensors, blockchain, drones, Artificial Intelligence and so on) can significantly increase efficiency, and open up to new types of services. Blockchain makes the data transmitted by IoT sensors secure, while artificial intelligence can analyse them to improve all the aspects of a shipment. There are already drones that can check the emissions of a ship, or carry out inspections of stationary containers or of infrastructure. A smart contract can manage all these activities with significant benefits in terms of costs and time, automating processes that are currently time-consuming and expensive in terms of labour.

COMPATIBILITY WITH ERP SOFTWARE

Blockchain is a database updated in real time, easily accessible through customisable APIs. Through these APIs it is possible to interface with the most common ERP software (Enterprise Resource Planning), such as SAP AG and so on.

EVOLUTION OF THE INSURANCE PRODUCTS

Through the integration of data from IoT sensors, smart-contract-based insurance policies can prove to be more efficient, automatically determining the occurrence of certain conditions and then starting the related insurance events faster. Moreover, in the past years the spread of innovative insurance products has been undermined by the complexity and costs associated with the management of insurance processes. Integrating the new blockchain technology makes it possible to automate premium calculations, management of assessments and settlement for certain types of claims, guaranteeing maximum transparency for the end user.

CONCLUSION

Ever-more, ports around the world are implementing new technological tools that can support the supply chain provision flow. A god examples is the Port of Rotterdam, which implemented an IoT platform to manage data related to hydrometeorological conditions. Recently, the port of Marseille has also started a blockchain pilot project. In particular, Marseille Fos is the main port of France and is the second port in the Mediterranean: its traffic has reached 81 million tons of goods in 2018. The aim of the project announced in 2019 is to increase control and visibility along the supply chain and strengthen the logistics of maritime transport along the MeRS axis, Mediterranean-Rhone-Saone, which is the axis that allows access to the centre of the Western Europe through the Mediterranean region.

The long-term benefits of blockchain are undeniable. Northern European ports that already use this technology, along with IoT, move 25% to 50% more containers than ports using traditional infrastructures, reducing shipping times by 40%.

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