6 questions and 1 answer about blockchain in logistics
The benefits of blockchain are clear, but supply chains are grappling with the best ways to implement the new technologies.
When the internet started gaining popularity, companies had to decide how they would use it. Would retailers just share their locations, or would they initially offer a catalog of items to be ordered by phone? What if a company adopted customer-facing software to use on the world wide web and it didn’t outlast the investment?
Some of these same questions exist with blockchain. Just as the internet was a game changer, many say blockchain will have just as great an impact.
The benefits of blockchain are clear: increased visibility and transparency, decreased fraud, less paperwork and more efficiency leading to lower costs. But the supply chain world is grappling with how best to implement this technology in a world where the basics are still evolving.
How are different industries adopting blockchain?
Big picture, blockchain adoption is slow worldwide and across industries. A 2018 Gartner survey showed that only 1% of CIOs reported investing and deploying it so far, with 77% saying they either had no plans or interest in adopting it.
Manufacturing and retail: About one third of retailers and manufacturers will track goods through blockchain by 2021, IDC predicts.
Insurance and financial services: These industries are the blockchain adoption leaders, according to Gartner.
Supply chain, transportation and logistics: As part of government and utilities sectors, supply chain, transportation and logistics are what's leading them into blockchain, as they’re focusing on process efficiency, according to Gartner. While fewer than 2% of shippers are actively seeking blockchain solutions, about 7% of 3PLs are looking into them, according to the 2018 3PL Study.
Biopharma: Regulatory compliance is a blockchain draw for biopharma, especially to show compliance with the Drug Supply Chain Security Act and the Food Safety Modernization Act. That said, biopharma is hesitant to jump on board, for a variety of reasons.
"Blockchain continues its journey on the Gartner Hype Cycle at the Peak of Inflated Expectations. How quickly different industry players navigate the Trough of Disillusionment will be as much about the psychological acceptance of the innovations that blockchain brings as the technology itself," David Furlonger, vice president and Gartner fellow, said in a statement.
What is blockchain’s implementation status?
The short answer to this question is that some blockchain companies are still building their systems and raising capital, while others are in the pilot stage.
"This is the year of the pilot. I’m not sure anyone has gotten out of the pilot stage," Brian Reed, executive vice president of supply chain and global strategy for FreightWaves, a freight-tech data and news provider which runs the Blockchain in Transportation Alliance (BiTA), told Supply Chain Dive.
A lot of pilots are beginning this year and expected to continue in the next two years, before some will scale up. Reed estimates that blockchain applications in supply chain and logistics will grow in three to five years, which he calls the sweet spot. By then, there will be good solutions developing and momentum.
Much like the internet development, blockchain will go through ups and downs before settling down. “Some will explode and die, and others will change the world,” Reed said. As for a larger scale adoption and getting the players on board, that could take five to 10 years, from what Jakob Stausholm, Maersk’s chief financial and technology officer for their IBM blockchain initiative, told the New York Times last year.
Does [blockchain company] size matter?
IBM has more than 400 blockchain projects using Hyperledger Fabric. But large companies take a more conservative approach, said Reed. Smaller companies can be more innovative. "The dangerous, risky, exciting stuff will make the biggest impact," he said.
How does industry develop standards?
FreightWaves created BiTA (and now Blockchain in Supply Chain: BiSCA) to help develop industry standards. "Like EDI [electronic data interchange], everyone has to speak the same language. With all different technical standards, without an underlying agreement on the standard message, we’re no better off than today," said Reed.
A company with its own unique blockchain, even with open API, still has to communicate with others. If the many different chains don’t connect, nothing is solved.
That said, Reed isn’t suggesting that everyone use one blockchain, though they have to be aligned. After all, software companies develop their own versions, even within specific functions. "If a standard is agreed on, everyone develops their own specialty around the standard," Reed said." Hapag-Lloyd said the same thing recently: not having blockchain standards defeats the point of blockchain.
Does every blockchain platform need smart contracts?
Smart contracts are one of the blockchain applications with immediate rewards. Running on a blockchain platform, the contracts allow the chain to essentially hold funds or cryptocurrency in escrow until both parties met their obligations. Not all blockchain platforms currently offer them. Currently 23 platforms are using or plan to use smart contracts.
Do you need unique cryptocurrency?
Blockchain applications do not need their own tokens or cryptocurrency to be successful, said Reed. "I feel like a lot of people are developing them because they feel they need to have a currency, a stickiness." But people have to adopt them if the cryptocurrency is to have value.
Smart contracts are useful in a blockchain, but you can often use them without buying or spending proprietary tokens. These cryptocurrencies don’t always help solve a problem. While not many places accept Bitcoin for payment (yet), it is a general cryptocurrency.
Some tokens, though, get more specific. The TEU, for example, was developed to use for shipping deposits. An initial coin offering (ICO) has to make sense in the grander scheme, for it to do well. "If the world still questions Bitcoin, it’s going to be hard to convince them to buy your token," said Reed. While he thinks it’s too early to push for tokens, he understands why they’re doing it – they have to start some place.
Blockchain is an answer, not the solution
Only when everyone is ultimately on board, will blockchain will be good for end-to-end supply chain tracking and visibility. "Blockchain is a network beneficial solution. For a company by itself, it's not going to be very beneficial," Susanne Somerville, founder of Chronicled told attendees at a biopharma supply chain event.
That means blockchain won’t be helpful to only use at a company warehouse, for example. "If connecting warehouses to ports, customers and manufacturing, that’s different,” said Reed. "Blockchain is distributed. There are other parties involved." But it doesn’t make sense just to use it within the four walls.
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