Considering how far we’ve come with technology, it is a surprise that many areas of modern life are outdated. We still issue paper money, use physical ID cards, and we still follow century old cargo shipping procedures, relying heavily on paperwork and needless bureaucracy. The problem is that nowadays there are too many companies involved in the process, so this approach slows down everything. Let’s look at an example.
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The majority of cargo freight, approximately 90% of it (which is more than 10 billion tons a year), gets transported by sea. Before arriving to the port, the cargo has to be created somewhere by a manufacturer or grown by a farmer. It might change hands two or three times, and by hands we mean logistic companies, before arriving to the port. Every time the goods get passed over to another company, a lot of documents must be transferred over:
- The CMR document,
- The Cargo Insurance Certificate,
- The International Commercial Invoice,
- The Packing List and the Delivery Note.
Preparation of documents can take time, each one requires signing by different authorities and delivery ( (which might take weeks because all involved parties don’t meet in the same place).
When the cargo arrives at the port, it gets offloaded and typically stays in a warehouse where the storage costs can quickly accumulate. Then it gets loaded onto a ship by another company and transported by sea to the destination port, where it’s stored again. It will pass through customs clearance, usually done by a customs clearing agency, then be loaded onto a truck or rail, and go through some more warehouses to be sorted, because there are various containers with various products. Eventually it will be transported to its final destination. How many parties are involved in the process? Up to 10 or even more. The amount of paperwork and delays is overwhelming for everyone involved.
Every ship delivering the goods, sends the Bill of Lading (B/L), a detailed list of a ship’s cargo, in printed form to the receiving party. In many cases, the ship arrives before the B/L delivery, because the courier is often slower that the ship, and the cargo can’t proceed further without the B/L, which causes delays.
Another thing that adds up to delays is that all payments are made via bank transfers, which are very slow and expensive. Cross border payments via SWIFT can take up to 5 days to be completed, going through several banks, each one taking its fee in the process(the average overall fee for a wire transfer is $25). All these factors pile up, the expenses pile up, amounting to huge losses, up to millions of dollars if a serious delay happens. A freighter ship, waiting for the paper to be delivered or signed is the usual situation in the ports. Empirical research shows that every cargo ship is idling in port for 25% of its lifespan. Such delays cost billions for industry, each idling day of a ship could cost as little as $10,000 and up to $150,000 in expenses, including salaries, port charges, warehouse storage, and running expenses. Delivering delay penalties can also amount to millions of dollars per one shipment, if the buyer charges 3% penalty for a week of delay.
Considering that the global value of sea freight itself accounts for $380 billion per year, such losses are a billion-dollar figure. Who pays for that? Consumers! The financial burden is always borne by the final consumer because the operational costs are always included in the retail price. Thus, speeding up the process would benefit everyone, give a boost to international trade, and cut costs while increasing efficiency of maritime trading fleets.
The solution: keeping all records on blockchain
How can it be solved? Blockchain technologies are the ideal solution for that problem. All participants of the supply chain can be chosen automatically, selected from all available offers at some kind of free auction, or assigned manually from the list of partners, each company having its own address on the blockchain. Of course, there must be an interface for that, otherwise nobody would use blockchain directly. Blockchain provides the transparency, given that every party on the supply chain can check all the necessary data and save time that otherwise would be spent on bureaucracy. This would reduce the need to hire mail couriers and sign documents physically, and all of it is practically free.
Basically, international trade can benefit from implementing blockchain in many ways.
1) The digital document circulation
Every approved carrier or manufacturer or retailer can sign the document with its signature, thus validating the receipt of goods or the sending of cargo. Once it’s signed, the signature can’t be deleted, that means that the signer participated in this supply chain. It’s always there, on the blockchain, it can be checked in a matter of seconds. All cargo properties can be recorded on blockchain, all containers counted, the Bill of Lading can be digitized, all payments can be transmitted via blockchain. Saving time on sending and waiting for various documents can help cut the costs significantly. Each day spent waiting for paperwork costs an additional 0.6–2.1% of the transportation value, each international courier costs $50-$75, and each trading company sends thousands of documents per year. GIVE EXAMPLE OF THAT COST HERE? A NUMBER
Every piece of cargo is delivered by various carriers, and at every stage of delivery something bad can happen. Some containers can get lost or stolen, or perishable cargo expires, and it wouldn’t be noticed until any final customer buys it and finds it out, or doesn’t find it and consumers get sick. Using blockchain, the whole supply chain can be tracked and the delivery time for each carrier can be measured. If something went wrong, it would be easy to find in blockchain records.
3) Finding a carrier for delivery
Currently it requires hiring people with many years of experience in the cargo transportation business, who have the right connections and can find you the best offer, or negotiate the best price for shipping. If the cargo manager would be able to negotiate a 1% discount, it can save up to $540,000 for a shipment (one ship can carry 18,000 containers, and the cost of carrying each container is $3,000, which equals to $54 million total). That’s much larger than the cargo manager’s yearly salary ($66,000), even with bonuses. Blockchain can be used to create a marketplace where manufacturers, carriers, and retailers can be connected and sign deals, so the prices will be effectively regulated by the balance of supply and demand, and you won’t even need a special manager to handle it.
4) Issuing smart contracts
Smart contracts are impartial, once the cargo is delivered, the payment is made. Or if something is stolen, this can be addressed and settled. Creating smart contracts is cheaper than issuing the ordinary paper Bill of Lading, it cuts the issuance tax cost of $50, saving hundreds of thousands of dollars per annum for a single company. This isn’t an overwhelming saving for a big transport company, but a pleasant addition to other beneficial effects of blockchain usage.
Summarized, the use of blockchain can revolutionize the industry, changing it the same way the steamboats changed the maritime trade. The benefit is obvious. So the question is: do we take any steps in this direction?
Current use cases
Of course, it would be stupid for large companies to simply ignore such opportunities. Many of them are already exploring such possibilities. For example, Walmart (in partnership with IBM and the Chinese retailer JD.com) announced the creation of Blockchain Food Safety Alliance to improve the food supply chain in China. China has problems with food delivery, a lot of its food is fake, causing food poisoning. Increasing transparency in the Chinese food supply chain is their goal, and blockchain technology could help them achieve it.
Another Chinese giant, Alibaba, adopted blockchain technology through its subsidiary companies Lynx International and T-Mall. Here blockchain is used to track information in their cross-border logistics services, such as production, transportation, customs, inspection and any third party verification.
These developments are oriented to the Chinese local market and aren’t intended for global use. While big companies have the capital to experiment with building their own infrastructure, small and medium-sized companies are left behind, right? That’s why CargoCoin, a project which incorporates practically every single feature that these international trade companies would need, aims to fill the gap. It offers digital Bills of Lading, integrated in the platform in form of smart contracts. Any participant of the supply chain can check the status of the cargo shipment, giving transparency but at the same time, the security of blockchain prevents any hacking or industrial espionage. The only way to gain access is to have the necessary access level. All parties have the tools to interact and change the cargo receipt (the document, containing the description of goods), the cargo ownership, or destination by mutual agreement.
It also offers a marketplace for hiring crew for ships via smart contracts. This marketplace looks like a fresh solution on the market.
Overall, CargoCoin provides a complete solution for the trading and shipping industries. The utility of the project, adopted at a large scale, would be tremendous. It’s a good example of a logistics blockchain oriented at the global market.
And we have existing use cases already in the air transportation industry, like the NeXt project of Boeing, developing a platform for tracking commercial cargo planes, and allocating safe traffic routes for flying. While everyone is busy with sea trade, Boeing thinks about the sky.
Will blockchain become the solution to the problem of inefficiency in international logistics? It certainly has a great chance to do so. There are too many benefits in using it to ignore it, so eventually it may become the standard in cargo transportation. Every business wants to be more effective, to cut the costs, and to speed up the process. This innovative new blockchain utilization offers a perfect opportunity to do so.