Blockchain In Logistics: Use Cases And How It Enhances Financial Security
Logistics businesses have to invest time and effort in developing new rules for supply chain management and smart logistics optimization
Supply chain and logistics operations are dominated by multiple moving parts and stakeholders, and for decades, these have been existing in silos. Result? Poor interoperability, lack of visibility over financial processes, trust issues between parties, and inefficient decision-making. But thanks to rapid technological advancements, businesses are now capable of addressing these inefficiencies intelligently.
One such technology that holds the potential to make supply chain operations seamless and transparent is blockchain. In fact, research highlights that 55 per cent of logistics service providers and 38 per cent of retailers, brands, and manufacturers are already driving investments in understanding blockchain. Let's quickly understand how and why blockchain will play a critical role in driving logistics efficiencies.
Role of blockchain in logistics
Blockchain is a distributed ledger database that is immutable, easy to use, scalable, and at the same time, extremely transparent and secure. It facilitates trust and transparency across the entire network via smart contracts and the decentralization of assets.
It is a reliable digital infrastructure comprising intelligence management, clouds, payment systems, digital documentation and more.
This frictionless integration of all financial transaction-related platforms and processes can help in many ways:
- Enhance trust and transparency in logistics
- Effortless yet secure mobility of goods and services between borders
- Closer alignment among the transport segment of logistics
Trust and transparency in financial transactions of logistics: The role of blockchain
Currently, all the people and companies in logistics keep their own ledger to record business transactions as they occur. While this is expensive and redundant, it can lead to distorted accounting as intermediaries can add margins for services.
Apart from being vulnerable to such inefficiencies, the entire financial ecosystem crumbles down in case the central banking institution crashes.
Incidents such as cyberattacks, frauds, and manipulations with cargo during international transit can also lead to financial fiascos.
Blockchain-powered logistics ecosystems are more efficient. They can share a universal ledger that gets updated every time a transaction occurs via peer-to-peer replication.
Blockchain uses cryptography that ensures:
- Participants see only those parts of the ledger that are relevant to them
- All the transactions are secure, verifiable, and authenticated
Blockchain also enforces smart contracts to ensure fair and bias-free asset transfers in the transaction database. Smart contracts can also replace the mountains of paperwork that are vulnerable to loopholes and compromise.
This ledger serves as the single source of truth for all the transactions over the network. It also ensures financial trust and transparency via transaction history that is readily available.
Some other financial transparency and trust applications of blockchain in logistics include:
Use Case #1: Effortless and Secure B2B and International Payments
Shippers can use the IoT sensor data from the carrier, such as vessel's condition, location, route, etc. for automatic document filling, financial calculations, custom duties, payments, audits, etc.
Blockchain can enhance financial liquidity for all the financial institutions responsible for trade financing in logistics. It also improves the visibility of crucial financing and digital documentation events. This also helps in minimizing lead time and makes the entire process effortless and error-free.
Use Case #2: Proof of Deliveries (PoD)
Proof of deliveries induce lags in the financial closures and also spark distrust among the customers.
Blockchain overcomes the PoD challenges by:
- Integrating Smart Contracts with IoT-enabled devices
- Enabling real-time shipment status updates for universal view uniformity
- Consistent monitoring and tracking of goods with special refrigeration and storage requirements
- Payment initiation after checking and authenticating product quality
- Management and recovering from localized failures and attacks
Use Case #3: Localized Failures and Lost Shipments
In many cases, local and international cargo is subject to damage, theft, and compromise, especially in the quick delivery segment. The driver can run away with the parcel or damage it in the transit process, or the shipment can get lost during overseas transportation.
Management or cold supply chains is another "in-transit" shipment concern that can be solved via IoT data regarding temperature
Blockchain ledgers are immutable and cryptographically verifiable. Hence, any such tragic incident gets reflected in the system right when it occurs.
Hence, all the parties can formulate their smart contracts keeping these unforeseen events in mind and draft highly optimized and fair policies for loss compensation.
Implementing blockchain for trust and financial transparency in logistics: Challenges and the road ahead
Blockchain increases traceability, efficiency, speed, and reduces disruptions leading to cost reductions across logistics operations. It can also improve financing, contracting, and international transactions, facilitating transparency.
However, creating a workable technology out of it still comes with significant challenges, such as:
- Creation of new rules for cryptocurrency-enabled supply chains
- Operational speed and energy-intensive processes for token mining
- Inherent differences in the ideologies of supply chain logistics and blockchain
Supply chains have considerable room for improving end-to-end traceability, ensuring financial transparency and trust among all the stakeholders.
While blockchain can be a powerful tool to overcome these challenges, it is not the only solution available. There are other efficient, scalable, and cryptographically verifiable technologies, such as, at Shipsy, we are implementing AWS QLDB for standalone ledger database management.
It is an append-only standalone ledger database, with an immutable journal tracking change history and offering full visibility into data lineage. It allows the ledger owner to decide the access rights and all changes are cryptographically chained and verifiable. Verification can be done via an API or by exporting the ledger blocks to S3.
AWS QLDB is scalable, highly available, and server-less, so there is no need to provision storage or IO in advance. After successful implementation of an internal POC on AWS QLDB, we have found out that it is perfectly suitable for our logistics use cases.
So, logistics businesses have to invest time and effort in developing new rules for supply chain management and smart logistics optimization.
Yes, it will come with a distinct and crucial commitment of resources, but every investment will promise a handsome return.