There is a growing need for more security and efficiency in global transactions, and blockchain offers a novel solution to a myriad of issues plaguing logistics. The logistics industry lacks standardised processes, which has led to a lack of transparency and a fragmented structure. Blockchain can eliminate the unnecessary bureaucracy involved in the administrative processes in logistics, and thereby make it more efficient. Moreover, the large amount of paperwork and documents involved in logistics can also be eliminated with blockchain, and be replaced by a more organized approach which is capable of tracking the shipments from their origin to delivery.
However, before getting deeper into how blockchain could benefit trade, an introduction to blockchain would be useful. Blockchain is essentially a decentralized, digital ledger which is used to record transactions across many computers making it hard or even impossible to cheat, hack, or alter the system. Each block in the blockchain consists of a number of transactions, and each new one gets recorded in the ledger of each participant in the transaction.
The very nature of blockchain discussed above makes some of its advantages in the logistics industry apparent. Blockchain creates a secure system by virtue of being a shared ledger, and also eliminates the possibility of a single point failure. It is not controlled by one single party, and functions based on shared responsibility of participants. Furthermore, transactions are tamperproof, and the records of a completed transaction are permanent. One of the biggest advantages is the fact that transactions are committed once the relevant parties have approved the transaction, making it consensus based. Besides, the shared nature of the blockchain ledger also makes sure that all the participants have the same version of the shared ledger, and can easily track all changes as they are also recorded. This enhances transparency for everyone involved.
However, the benefits blockchain has to offer to logistics are not limited to security alone. Efficiency is perhaps the most important factor in logistics, second only to security. The logistics industry is undoubtably due for an upgrade in terms of both these factors, which is why blockchain has been lauded by many as the next big thing in the industry. Blockchain enhances efficiency too as the ledger can record the movement of each product that is being shipped. This kind of data can be invaluable for companies as it can be used to create faster routes and remove needless steps in the process. Blockchain also enables smart contracts which allow retailers and logistics companies to establish automated binding agreements which automatically become void if all the conditions of the contract are not met. Such a contract allows companies to monitor the various steps taken throughout the process, and ensures compliance with the agreed upon conditions. Such a system establishes a great deal of transparency which in turn leads to faster deliveries.
The logistics industry stands to gain innumerable benefits from incorporating blockchain into their supply chain. The combined effect of reduced costs, improved efficiency and security all make blockchain the ideal fit for the logistics industry.
Balaji Kandregula is the Director Products and Solutions at MSRcosmos.