How IBM And Maersk Will Use The Blockchain To Change The Shipping Industry

With around 90% of world's trade carried by the international shipping industry, maritime has become the backbone of global trade. With a surge in the intercontinental shipping volumes over the years, there has been a simultaneous increase in the number of accompanying stakeholders, jurisdictions, procedural layers and exploitation of loopholes in the supply chain. This has taken a severe toll on not only the customers, businesses and governments, but on the overall global economy.

Considering that state of affairs, IBM (IBM) and A.P. Moller - Maersk A/S (AMKAF) have joined to build a new global trade digitalization blockchain solution to reduce the cost and complexities in the process, bringing significant improvement in maritime supply chain efficiency and enabling seamless global trade.

Shipping And Its Complexities

Shipping merchandise is a complex process involving a number of organizations and people. Since such shipments travel around the globe, the procedural requirements tend to vary, resulting in a bulk of complex paperwork associated with each shipment that moves across a whole network of shippers, freight forwarders, ocean carriers, ports and customs authorities.

Complex procedures not just result in delays but they tend to make the system susceptible to corruption, fraud and crime. Governments are faced with the challenge of smuggling and national security, and businesses suffer from costly multi-layered processes resulting in loss of business opportunities; customers, too, are adversely affected as they pay the price in the form expensive goods.

Maersk, which holds a 16%-18% market share, is one of the dominant players in the shipping and logistics industry. In 2014, a team of Maersk’s IT specialists started tracking an ordinary shipment of avocados and roses from East Africa to Europe. “The team’s goal was to document - in order to digitize - the maze of physical processes and paperwork that impact every shipment and are a costly drag on cross-border trade.” They found that the process involved nearly 30 people and organisations, while the process included more than 200 different interactions and communications among them and this now forms the basis of its initiative with IBM.

Issues And Observations

Listed below are some observations and facts in numbers that highlight the need for improved workflow and better visibility in the existing global systems:

  • According to the U.S. Department of Commerce, the average travel time for a container vessel from Asia to the U.S. is between 14 and 30 days. Further, “documentation, customs clearance, handling and inland shipping can add 17 to 33 days to the total shipping time,” as per ACE, Department of Commerce.
  • IBM estimates that costs associated with trade documentation processing and administration make up to 1/5th of the actual physical transportation costs.
  • Loopholes in the supply chain have led to corruption, which not only tarnishes a company's image and deflates credibility but also results in a huge economic cost. As per estimates, corruption in the system can add more than 10% to the overall cost of doing business internationally.
  • The maritime industry is exposed to cyber security issues as well. In fact, a report by Allianz indicates that “pirates may be abusing holes in cyber security to target specific cargoes.”
  • While the above are industry-specific issues, transportation costs play a major role in global trade as they determine the access to foreign markets, and thus are considered a significant factor guiding a developing country’s export competiveness. “Shipping costs often represent a more binding constraint to greater participation in international trade than tariffs and other trade barriers” and result in slowing down of the GDP, according to the World Bank.

Blockchain: A Solution

IBM and Maersk are building a blockchain solution based on the Hyperledger Fabric that will digitize the end-to-end supply chain process and help “manage and track the paper trail of tens of millions of shipping containers across the world.”

Bitcoin’s underlying technology, the blockchain is an immutable, highly secure and trusted shared network that allows transparency and highly secure sharing of information among permissioned participants. Shipping documentation on the blockchain would imply that participants can view the progress of their shipment. Besides, it also enables real-time exchange of documents without any fear of record-meddling. This would bring an unprecedented level of transparency in operations while speeding up processes and improving inventory management, thereby cutting down on foul play, operational costs, and delays.

The solution developed by Maersk and IBM is expected to be widely available to support multiple parties across the ocean shipping industry ecosystem later this year, as per IBM’s press release.

Final Word

With the blockchain, there will be real-time visibility, reduced complexities, improved accuracy and efficiency in the system, which in turn will help reduce costs and enhance trust. Its usefulness will not be limited to shippers or customers but will extend to lowering trade barriers, especially for developing nations which are not able to participate in global trade owing to cost considerations. Overall, “when adopted at scale, the solution has the potential to save the industry billions of dollars” and benefit global trade and the world economy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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