From Skepticism to Cautious Optimism: How Blockchain Could Impact Transportation

J.P. Wiggins | 3Gtms

THE TRANSPORTATION INDUSTRY has long discussed blockchain with a healthy dose of skepticism, or at least has taken a wait-and-see approach. And rightfully so. The term “blockchain” gets thrown around so freely that it makes one wonder whether the person using it truly understands it.

First, forget about blockchain as you know it. This is not Bitcoin. Instead, think about it as another type of API/EDI – as a different way to communicate securely between partners. At its heart, a blockchain creates a shared system of records in a business network. Here’s how researchers from the U.K. put it:

The term ‘blockchain’ refers to these transactions being grouped in blocks, and the chain of these blocks forms the accepted history of transactions … blockchain protocols are able to ensure that transactions on a blockchain are valid and never recorded more than once, enabling people to coordinate individual transactions in a decentralized manner without the need to rely on a trusted authority to verify and clear all transactions.

As the hype dies down, more thoughtful conversations are emerging about how blockchain could realistically impact the transportation industry in the near future.

Opening Visibility

Although there have been some significant advances in technology that have helped open shipment visibility, there’s still a ways to go. Many 3PLs rely on phone calls and emails to track shipments – hardly an accurate or timely way to answer the constant question, “Where’s my stuff?”

Blockchain has the potential to break down barriers between systems and build better integrations with the flow of real-time and secure data. For providers of transportation management systems (TMS), a blockchain scenario like this could be tied into a TMS’ automation, so that workflows are created around it and the data augmented, giving customers the ability to see what’s going on with their orders in a user-friendly, control tower view.

Because it creates a shared system of records in a business network, each member on the blockchain network gets access privileges on a need-to-know basis. That way, information can be shared, but remain secure. For example, a carrier posts data to the blockchain and allows customers and agents to use the data. This could be used to create a network of transit data to solve visibility needs.

At first, everyone will struggle with communication protocols and data sets (reference numbers and fields being used differently by each carrier and such), but these issues can be overcome with the right technology.

At first, everyone will struggle with communication protocols and data sets (reference numbers and fields being used differently by each carrier and such), but these issues can be overcome with the right technology.

BITA (Blockchain in Transport Alliance) is working for common standards, but getting one solution to critical mass will be the biggest challenge. Yet the benefits would be massive, allowing small TLs the ability to offer levels of trading partner interaction that is now reserved for only the large carriers with huge IT budgets. Perhaps a regulatory body will take the lead because a national network built by a government agency would have a measurable impact on GDP. Or perhaps it will be a non-profit company, or even multiple companies that charge out on their own and then consolidate. 

Improving Payment Speeds with Smart Contracts

After the ongoing question of “Where’s my stuff?” the second-most-common question in the transportation world is probably, “Where’s my payment?” Companies can spend hours of manual labor processing a shipment and relying on spreadsheets, paper invoices and phone calls – all things susceptible to data entry errors.

Blockchain technology can erase the need for many of these steps with something called a smart contract. Using computer code, a smart contract is a digital way of facilitating, verifying, and enforcing a contract and agreement terms, which speeds up the payment process. It may even be self-enforcing; with the ability to monitor inputs from trusted sources to determine whether stipulations have been met and transactions can be initiated. A smart contract can also reduce the need for intermediaries such as freight brokers, carriers, B2B resellers, and others, which boosts margins and efficiency.

Eric Johnson at the Journal of Commerce explains how a smart contract could work in action:

In logistics terms, the easiest way to think about a smart contract is a scenario where a process is triggered by an event. For instance, the event could be receipt of a container at a distribution facility, triggering an electronic payment from one party to another at a specific date. The value in that scenario is the elimination of the time required to produce an invoice, manually initiate a payment, and resolve billing discrepancies.

The uncertainty that 3PLs are facing with tightening transportation capacity, the ELD mandate and the Amazon Effect make faster and more efficient transactions a particularly attractive benefit of blockchain technology.

Building Trust

Cautious but optimistic discussions of what blockchain could do for 3PLs and the transportation industry are encouraging, especially in terms of clearer shipment visibility and faster financial transactions. But it’s more than just the facilitation of better data: The byproduct of all of this is a new level of trust between 3PLs, shippers and carriers. Each partner now has a more reliable picture of records and performance indicators, a more transparent view of contracts and payment terms, and the ability to collect information faster and easier – all verified by the blockchain network.

There’s no certainty as to how this will all play out, but the framework for creating a truly viable transportation blockchain network is within our grasp.

J.P. Wiggins is the Vice president of logistics at 3Gtms, a TMS provider, based in Shelton, CT. He can be reached at jpwiggins@3gtms.com or 203- 567-4610.

Image credit: IQoncept/Shutterstock.com