IBM and Maersk are using a blockchain built on the Hyperledger Fabric to manage the supply chain for container shipping.
Maersk, the Danish shipping company which is the largest container carrier in the world with 18 %
to 20% of the market, did a proof of concept (POC) with IBM in September, tracking a container of flowers from Mombasa, on the coast of Kenya, to Rotterdam in the Netherlands.
Ramesh Gopinath, IBM’s vice president of blockchain research, said all the documents for shipping containers can be fully digitized and the containers can be tracked. In the September POC, the shipping cost $2,000 and the paperwork could be about $300, or 15 percent of the cargo’s value.
Traditionally, a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, including more than 200 different interactions and communications among them, said the IBM announcement.
Using digital records and a blockchain can sharply reduce costs, although the actual savings won’t be known for a year or two, until the blockchain is more widely used.
“Global trade $20 trillion, big chunk of global GDP, and container shipping is a huge part of it,’ said Gopinath. “Fifty percent travels on containers. When I walk into any store to buy something, it likely came on a ship.”
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That includes not only the obvious — toys from China — but the ingredients for a dessert like tiramisu with imported chocolate, spices and flavors, he added.
Both shipping and the financial process supporting it — trade finance — rely on piles of paper.
“The entire process is extremely inefficient,” said Gopinath of the container shipping business. IBM started working with Maersk in December 2015 to see how the paper records could be digitized. It completed a pilot in last month.
The pilot started with an empty container at Schneider Electric in Lyons, France. It was filled with goods from the plant there and trucked to Rotterdam, loaded onto a Maersk Line ship and transported to the Port of Newark and then to a Schneider Electric facility in the U.S.
The complexity of international shipping is clear from the number of agencies which participated in this pilot. They included Customs Administration of the Netherlands working under an EU research project, the U.S. Department of Homeland Security Science and Technology Directorate, and U.S. Customs and Border Protection. Damco, Maersk’s supply chain solutions company, supported origin management activities of the shipment while utilizing the solution.
The number of agencies and companies involved in the movement of a single container points to one of the issues that digitalization of trade will face, said Gopinath, not all countries are ready.
“Computerization varies by country. The reason we picked [Rotterdam and Newark] with guidance from Maersk is that they chose the trade lanes and brought in customs to make all this happen.”
He sees the benefits reaching all the way through the supply chain, including to the retail warehouses, which will know when a shipment is coming so they can staff to receive it, and even to individual stores.
A permissioned blockchain is an immutable, highly secure and trusted shared network which provides each participant end-to-end visibility based on their level of permission. IBM’s announcement said that the costs associated with trade documentation processing and administration are estimated to be equal to the actual physical transportation costs,
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It also offers a big benefit for ports because they get information of when the ship arrives and what is on it so they can plan how to handle the containers more efficiently.
The supply chain blockchain IBM is using with Maersk is a world away from anonymous bitcoin transactions. This is a closed group, a permissioned blockchain where all the participants are known and have permission to participate.
“It’s early days for blockchain,” said Gopinath. “I think we at IBM have done more with blockchain than anyone on the planet. The solution developed by Maersk and IBM is based on the Linux Foundation's open source Hyperledger Fabric.
IBM’s announcement said that the solution is designed to help reduce or eliminate fraud and errors, minimize the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.
Ibrahim Gokcen, chief digital officer at Maersk, said: “The projects we are doing with IBM aim at exploring a disruptive technology such as blockchain to solve real customer problems and create new innovative business models for the entire industry. We expect the solutions we are working on will not only reduce the cost of goods for consumers, but also make global trade more accessible to a much larger number of players from both emerging and developed countries.”
Blockchain, which has potential for letters of credit to accompany containers, is getting mixed reviews from banking organizations, according to Enrico Camerinelli, senior research analyst at Aité Group.
He notes that R3, a financial technology consortium and SWIFT have said blockchain is unneeded or not ready for wholesale banking, although it was a hot topic at SWIFT's annual Sibos conference in Geneva last October.
However, notes Camerinelli, individual banks including China’s central bank, Mizuho Bank and JPMorgan are testing blockchains in controlled circles -- permissioned blockchains.
“Banks are also engaged in blockchain proof of concepts to transact digitized documents, particularly letters of credit, bills of lading, and invoices,” he wrote in a recent report. “ING and Société Générale have run a paperless oil trade on a blockchain platform… Rabobank, Deutsche Bank, HSBC, KBC, Natixis, Société Générale, and UniCredit are developing a shared cross-border trade finance platform for small and midsize enterprises… Although blockchain technology is still in its infancy, problems are not insurmountable and should be the key focus area of bank consortia.”
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